4. Earned income tax credit, or EITC
Workers on the other end of the income scale also get an added inflationary break. The earned income tax credit helps cut the tax bill of filers who make below a certain wage limit.The potential credit on 2008 returns ranges from $438 to $4,824.
A childless person who earned less than $12,880 in 2008 can apply for the credit. A worker who, supporting one child, made less than $33,995 is eligible, as is a worker earning less than $38,646 and taking care of two or more youngsters.
The EITC earning limits are $3,000 higher in each category for married taxpayers filing jointly.
Because the EITC is a credit, you subtract the amount directly from any tax you owe. Even better, unlike most tax credits the EITC is refundable. That means if you qualify, you can get the money even if you owe no tax.
5. Car costs
The only good thing about high gasoline prices is that they lead to larger tax deductions for individuals who use their vehicles for work, when moving or in connection with medical or charity-related trips.Each fall, the IRS determines how much drivers can write off for these various travels in the coming 12 months. However, skyrocketing pump prices in 2008 prompted the IRS to make an additional midyear adjustment. That means you'll be making dual calculations for any allowable mileage deductions.
If you used your car for business in 2008, the standard mileage rate for business use of a car, van, pickup or panel truck is 50.5 cents per mile driven from Jan. 1, 2008, through June 30, 2008. The rate for business driving from July 1, 2008, through Dec. 31, 2008, is 58.5 cents per mile.
Travel for medical purposes last year is deductible on your 2008 return at 19 cents per mile for the first six months of the year. The rate jumps to 27 cents for such miles driven the last half of the year. Those same rates apply to allowable move-related mileage.
The mileage deduction for travel in connection with charitable services is not adjusted for inflation. It is set by law at 14 cents a mile. Lawmakers do make exceptions for special situations. That's the case for miles driven in connection with charities providing services to certain areas of the Midwest that were struck last year by natural disasters. If you assisted in relief efforts, or do so in 2009, your mileage reimbursement is 70 percent of the business rates.
In addition to these inflation adjustments to existing tax laws, there are some new ones on the books that could affect your 2008 return. See "10 tax laws that could affect your 2008 return."