Now is the time to start thinking about your taxes because your refund could help you get through these tough economic times.
New Homeowner Deduction
As part of the housing bailout bill passed by Congress, homeowners who do not itemize their taxes can claim a property tax deduction of $500 or $1,000 if you are married and filing jointly, in addition to the standard deduction.
And if you were a first-time home buyer in 2008, you may be eligible for a tax credit of up to $7,500 or 10 percent of the purchase price, whichever is less.
There is an important catch to this credit though. You have to pay it back in the next 15 years, in equal amounts each year, which makes it a bit more like a loan than a credit. So if you took the maximum credit of $7,500, you would need to pay back $500 per year for the next 15 years. But it still helps you get some much needed cash now when the economy is so bad, and you can pay it back a little at a time as things get better.
Unemployed Can Deduct Many Job Hunting Expenses
If you were laid off in the last year, most of the expenses incurred while looking for a job can be deducted from your taxes, so carefully track these expenses. For example, any money you spent on creating and mailing your resume is deductible. You can also deduct expenditures for career coaches and headhunters. You can even deduct long distance or cell phone charges related to the job search, as well as travel expenses incurred for interviews, including mileage.
Commonly Missed Deductions
Teacher Book Credit: Teachers who paid for books or other classroom supplies can deduct up to $250.
College Tuition Credit: Parents who paid their children's college tuition in 2008 can deduct up to $4,000.
Clean Fuel Credit: If you bought a hybrid car or truck you're eligible for a conservation tax credit of between $250 and $1,000. Depending on the make of the car you could get a fuel economy credit of between $400 and $2,400.
Prepaid Refund Cards From Tax Preparation Companies
Many tax preparation services have introduced prepaid tax refund debit cards, where your tax refund amount is loaded on a debit card. These cards are targeted at consumers who don't have a bank account -- approximately 28 million Americans -- and the 45 million Americans who pay high bank fees because they don't maintain the minimum balance.
However, these refund cards are a better alternative to high-cost refund anticipation loans, which could carry annual interest rates of more than 187 percent.
It takes many cards about two weeks to arrive, which is about the same amount of time it would take the typical e-filer to get his or her return.
Many -- not all -- of the cards also have hidden fees, such as a one-time fee for the card, transaction fees, inactivity fees and added ATM fees.
If you have the ability to e-file or do not need your tax return right away and you have a bank account, I'd suggest you do not use these prepaid refund cards because of all the fees.
The H&R Block prepaid debit card is called the Emerald Card. There's no wait to receive the card, but it can't be activated until you actually get your refund. The fees associated with the card are:
an ATM fee of $1.95 per transaction
a $2.50 inactivity fee if card isn't used for three months.
a $10 replacement charge if the card is lost or stolen
the balance on the card cannot be redeemed for cash
H&R Block responded, saying there are minimal fees associated with its prepaid debit card. The company provided "GMA" with a list of fees and benefits associated with the card:
no fee to receive a card or to set up the card
no fee to receive payroll direct deposit on the card. This feature allows people to avoid paying to have payroll checks cashed, saving them, on average, $360 to $500 a year
no point-of-sale transaction fee
no monthly fee for active cards. If there is no activity on the card for three months, beginning in the fourth month, the client will see a $2.50 monthly inactivity fee. However, there is no fee to cancel the card, so that would be a better option
a $1.95 ATM fee; however, we educate all of our clients on ways to avoid this fee, which is especially important for clients who are new to banking. We give them instructional materials that let them know that many grocery stores, drugstores, etc., will let you get cash back with a purchase for no fee
no fee for VRU to check their balances
no fee for a personalized card. Clients can request one for free and are automatically sent a personalized card after reloading money on the card four times
and, every Emerald Card comes with a savings account and there is no fee to open or maintain that. Clients have the option of splitting their refund -- part into the spend account, part into savings
Save Before You File: Increase Your Exemptions
Increasing your exemptions may lower your eventual refund, but it will increase your take home pay during the year. For example, in 2008, the IRS issued approximately 107 million refunds averaging $2,400, or a total amount of $256 billion.
When you get a refund, it means you overpaid your taxes and essentially loaned the government money during the course of the year, free of interest.
With an average refund of $2,400, you could be entitled to three extra exemptions. In the 25 percent tax bracket, that could boost your take-home pay by $2,625 per year, and you'll have that money to use right away with every paycheck instead of waiting until the end of the year.
Mellody Hobson, president of Ariel Investments in Chicago, is "Good Morning America's" personal finance expert. Click here to visit her Web site, www.arielinvestments.com. Amar Parikh contributed to this report.