Text size: increase text sizedecrease text size Tips for making the most out of tax filing season

Leave no stone unturned in search for deductions, experts say

Gather your W-2, charitable receipts and investments statements—tax season is here.

There are a few bright spots for filers, such as a bigger standard deduction for some homeowners and one last chance to claim a tax rebate if you didn't get one last year. Congress also temporarily adjusted the alternative minimum tax, shielding more than 20 million taxpayers from a tax that was expected to hit only the wealthy.

Here are some issues to consider:

Tax-free capital gains

As of 2008, investors in the 10 percent and 15 percent tax brackets have a zero percent long-term capital gains tax rate.

These are investors with taxable income of up to $32,550 for individuals and $65,100 for joint filers. This zero percent rate runs through 2010.

"You could have income above that and have gains partially taxed at the zero percent rate," said Bob Scharin, senior tax analyst with Thomson Reuters Tax & Accounting.

Say a couple has taxable income of $70,000. Of that, $55,000 is ordinary income and $15,000 is capital gains. The couple wouldn't have to pay taxes on the first $10,100 of capital gains. The remaining $4,900, which is above the $65,100 income limit, would be taxed at the regular capital gains tax rate, Scharin said.

Sounds good, but there's a drawback. A capital gain is added to adjusted gross income, and when that goes up you could be ineligible for certain deductions or find your Social Security benefits subject to tax, Scharin said. Also, the age of the "kiddie tax" has been raised to prevent parents from transferring securities to children in low tax brackets to sidestep capital gains taxes.

Children's unearned income—interest, dividends and capital gains—that exceeds $1,800 will be taxed at the parents' rate. The kiddie tax applies to children through age 18, or 23 if they are full-time students.

Last crack at rebate

Last year's stimulus check technically was a 2008 credit. But checks went out based on 2007 tax information to get money quickly into consumers' hands.

The criteria to qualify haven't changed, but your situation might have since 2007. You now might be eligible for a tax rebate if you weren't before, or you could get a bigger one if you didn't receive the maximum last year.

The maximum rebate is $600 for an individual and twice that for joint filers. Parents with young children can get an extra $300 per child. You must have at least $3,000 in income, and the rebate starts phasing out once income tops $75,000 for singles and $150,000 for joint filers. Dependents are unable to claim rebates.

If you had a child or your income fell below the cutoff limits last year, you could receive a rebate now. You will need to file a return to claim the "recovery rebate credit." Include any rebate amount you already received. If you forgot the amount, look it up online at www.irs.gov.

But don't get your hopes up. "According to the IRS, most people have already received everything they are entitled to when they got their rebate," said Jackie Perlman, an analyst for the Tax Institute at H&R Block.

Beefed-up standard deduction

New this tax season: a bigger standard deduction for homeowners who pay state and local real estate taxes but don't file an itemized return.

On top of the standard deduction, you can claim up to $500 of real estate taxes paid if single or up to $1,000 if filing jointly.

"This is most advantageous to someone who has a small or no mortgage," Scharin said.

Lemonade from lemons

Have worthless stock? You might be able to write off the loss if the stock was truly not worth a penny last year and has no expectation of recovering, Scharin said. This is a difficult threshold to meet, unless, say, a company is being liquidated in bankruptcy and shares are canceled, he said.

More commonly, you end up selling losers for something. But you can still get a tax break. Any capital losses last year can be used to offset capital gains, if you had any. Excess losses can be used to offset up to $3,000 in ordinary income. And if your losses are even greater, you can use those losses to offset gains and income in future years.

"Check if you did have a carry-over. Don't forget about it," Scharin said.

Out of work

If you collected unemployment benefits last year, that income is taxable.

But if you're looking for work in the same field, you can deduct any unreimbursed job-search expenses that exceed 2 percent of your adjusted gross income. This includes travel and lodging.

Also, you can deduct certain medical expenses that exceed 7.5 percent of your adjusted income—an easier threshold to meet when you're out of work, Scharin said. Among deductible expenses: the hefty Cobra insurance premiums you pay to remain covered under your old employer's plan.

Debt forgiveness relief

Congress took pity on troubled homeowners who had mortgage debt forgiven by a lender and then were whacked with a tax bill because canceled debt is considered income. Singles and joint filers don't have to pay taxes on up to $2 million of forgiven debt on a principal residence going back to 2007. Thanks to a recent extension, this tax break will continue through 2012.

IRA contributions

You have up to the April 15 tax deadline to make a 2008 contribution to a tax-favored individual retirement account. You can salt away up to $5,000, and an extra $1,000 if you're 50 or older.

Some contributions to a traditional IRA are deductible. You can deduct your contributions no matter your income if you don't have a retirement plan at work. If you do, some or all contributions can be deducted if income is less than $63,000 for singles and $105,000 for joint filers.

"The question many people would ask is, 'Why should I be doing that? I was laid off, or the future is so uncertain,' " Perlman said. "Put something away. … You will be happy about it in future years."

Eileen Ambrose is a columnist for The Baltimore Sun, a Tribune Co. newspaper.