Bailout goodies beyond Wall Street

Better news, taxpayers! Some popular tax breaks that affect those of us living far from Wall Street were included in the Emergency Economic Stabilization Act of 2008, otherwise known as the bailout bill.

While many folks are upset with the special provisions included in the bill, they also might be happy about some of them.

AMT patched: The alternative minimum tax, that nasty parallel tax that produces larger tax bills for millions of folks, was once again patched as part of the bailout package.

The biggest problem with the AMT is that it's not indexed for inflation. So Congress effectively took around 21 million folks off the AMT rolls by increasing the tax's 2008 exemption amounts to $46,200 for individuals and $69,950 for married filing jointly filers.

Extenders OK 'd: The extenders, those tax breaks that are reauthorized temporarily by lawmakers, were part of the package.

That means if you want to deduct your state and local sales taxes instead of state income taxes, you can. This tax break for itemizers goes through 2009.

Also extended for two years are the above-the-line tax breaks for tuition and fees and for some of the costs incurred by teachers and other educators who buy supplies for their classrooms. These adjustments can be claimed directly on Form 1040 or 1040A, meaning you don't have to itemize to get the benefits.

Special tax situations: The standard deduction for real property taxes for nonitemizers, up to $500 for single homeowners and $1,000 for married couples filing jointly, is now in effect through 2009.

And older IRA owners can once again directly roll distributions from those accounts to a qualified charity. This means they won't owe tax on the money that's transferred to the nonprofit. This donation option also goes through 2009.

Energy considerations: The energy portion of the new law includes renewed and expanded tax breaks for residential solar, wind and geothermal power. But most folks will take advantage of the easier-to-complete energy home improvements, such as adding insulation to walls and attics or putting in new thermal windows and doors. Even window film counts.

These home improvement tax breaks were part of the 2005 energy bill and expired at the end of 2007. Now they're back and good through 2009. That gives you this and next tax year to fix up the old homestead with some financial assistance from Uncle Sam.

Driving down fossil fuel usage: A couple of transportation tax and energy benefits also were part of the package.

Plug-in hybrid electric vehicles aren't widely available yet, but Capitol Hill wanted to make sure that when they are, we have a tax incentive to buy them. Not surprisingly, this vehicular credit is set up much the same way as the hybrid one. That means there's no one tax break.

The tax break starts with a base credit of $2,500 then adds additional tax break amounts based on the vehicle's battery pack capacity. The maximum credit could amount to of $7,500 for light-duty vehicles; that's most of us. It goes to $10,000 for vehicles with gross vehicle weights of more than 10,000 but less than 14,000 pounds, $12,500 for vehicles with a gross vehicle weight of more than 14,000 but less than 26,000 pounds and $15,000 for any vehicle with a gross vehicle weight of more than 26,000 pounds.

And again like the hybrid tax break, the electric vehicle credit will phase out based on how many of the autos are sold.

Folks who rely on their bicycles to get to work also get a bit of break, but not for a few months.

Tax law already allows companies to provide workers with tax-free transportation fringe benefits, such as transit passes. This benefit will be extended to employees who commute by bicycle. Companies can start offering the new benefit of $20 per month on Jan. 1, 2009.

Free file for all

Next year when we electronically fork over our hard-earned cash to make tiny dents in the gazillion dollar -- and growing -- deficit, most of us won't have to pay a separate e-file fee.

The two tax software giants have announced that next filing season, all us taxpayers who use the desktop versions of TurboTax and TaxCut won't have to pony up a few extra dollars to e-file the returns we prepare on our own computers. Electronic filing of our 2008 returns will simply be part of the package.

This generally is a good thing for filers. Since 2003, the IRS has offered Free File, a program where eligible taxpayers can go online to an IRS page, prepare their taxes and file them electronically at no charge, for either the tax return calculations or filing.

But most years, there's been an income cap. For 2007 returns, which can still be Free Filed through Oct. 15, you must make $54,000 or less to use the public-private partnership program. The 2008 adjusted gross income limit is expected to be $56,000.

The IRS and the Free File group say the limit still allows about 70 percent of taxpayers to use the no-charge service. But the remaining 30 percent had to come up with between $15 and $20 to e-file.

And a lot of the Free File-ineligible group opted instead to send in old-fashioned paper forms, undercutting the IRS effort to have 80 percent of us e-filing by this year. So far, with numbers updated through July 5, only 57 percent of taxpayers have e-filed their 2007 returns.

Desktop joins online: True, many software companies have allowed all customers to file for free, usually if they use the online version of the product. But some people, me included, don't like the online tax prep option. We want to put the product on our own machines, where we feel like we have a bit more control.

"We were about 95 percent free filing," says Denise Sposato, director of communications and communities at H&R Block, the maker of TaxCut. "The only thing that was remaining was a few versions of our desktop software."

Intuit's TurboTax also is offering its desktop package buyers the option to e-file for free.

Not precisely free: Technically, though, the e-filing still isn't strictly free. You pay for the software package. You just don't have to pay more to e-file.

Looks like the tax software manufactures learned a lesson from the airlines. I know I personally hate such nickel-and-dime tactics. I prefer to pay a bit more up front -- isn't that what happens with every retail product every year (or sooner) anyway? -- and then have all the services paid for with no surprises at the end when it's time to file.

Intuit agrees with me. TurboTax's deluxe version is about $15 more this year, says Julie Miller, director of Intuit's consumer products division, but the company believes that is a reflection of the product's value.

"We don't think it makes sense to impose a la carte pricing," says Miller. "Over the years we've added features, such as It's Deductible and audit support. That's what we're doing with e-filing. Last year, the cost of federal e-file was almost $18, so taxpayers will still save some dollars."

State filers still pay: But those who have to file state tax returns won't. Neither company is waiving the separate fee to send state returns electronically.

The big problem here, says Sposato, is that the states have such different tax systems. Not all collect income tax.

But keep the faith. Tax software features change almost as much as the actual tax laws.

Miller says that Intuit is evaluating its services and by the 2010 filing season, state taxpayers might be getting the same break -- they'll enjoy electronically filed federal returns next year.