🖤 Donations of all sizes power our public service journalism Give Now

Clearing up 2008 tax questions

Marketplace Staff Jan 30, 2009

Clearing up 2008 tax questions

Marketplace Staff Jan 30, 2009


Tess Vigeland: Don’t hate me because I’m done with my taxes. Yup, finished them last weekend. Getting a refund from Uncle Sam and probably an IOU from the state of California.

For those of you who haven’t even gotten all your paperwork together yet, we’ve brought in Frank Degan, an enrolled tax agent who’s been with us over several tax seasons.

Welcome back.

Frank Degan: Thanks Tess. It’s good to talk to you again.

Vigeland: You know, 2008 was a pretty terrible year — all kinds of surprises on all kinds of fronts. As we look at getting our taxes done, is there anything that we need to brace ourselves for in terms of this particular season?

Degan: Well, this year we hope for a fairly positive filing season. Because of the economic conditions, we may see some situations we haven’t seen in the past: people maybe taking more money out of their 401(k)s or IRAs and that type of thing.

Vigeland: And that’s something that you want to watch for because if you did that, you’re going to get a pretty hefty hit, right?

Degan: Yeah, typically, and especially if you’re under 59-and-a-half, you do have to pay a 10 percent penalty. Unfortunately, just the fact that you were out of work or you needed the money doesn’t absolve you of that penalty, though I will tell your listeners in the Midwest there are some exceptions to that general rule so do a bit of research or if you have a tax professional, make sure you touch base with them on that.

Vigeland: Is that because of natural disasters that they went through?

Degan: Yes, that was because of the severe flooding in the Midwest and certain counties are affected, so it’s something to pay some attention to.

Vigeland: Let’s talk about the Recovery Rebate Credit. Now this has to do with last year’s stimulus package. What should folks be looking out for?

Degan: What happened was when Congress passed that stimulus package, they authorized I guess what we would call a “prebate” of 2008 taxes. Obviously, they only had the 2007 tax returns to go by, so they gave these stimulus payments based on filing a 2008 return that was going to be done in the future, but using 2007 numbers. So if you’re over a certain amount of money, you may not have qualified. Obviously, with the economic downturn, there may be some people who’s gross income is certainly not as high as it was last year. So there is a special line on the tax return where you can get this credit as a result of not being able to take it in 2007.

Vigeland: You know, one question that we got into our inbox here at Marketplace this past week was someone asked whether they should actually hold off doing their taxes until there is a new stimulus package passed by the Congress. Now they’re wondering if that could change their taxes for 2008. Any advice there?

Degan: I don’t think so. I wouldn’t recommend that to my clients. The only possible place I see it is maybe in this first-time home buyer credit. Let me explain that to you Tess, because a lot of folks have been asking about this. Taxpayers who have certain adjusted gross income limitations are eligible for a $7,500 tax credit for what they call a first-time home buyer, meaning you cannot have owned a home in the past three years. It’s basically a loan that must be repaid over 15 years starting with the 2010 tax return. So the taxpayer will get $7,500 now, but based on current law, they will have to pay that back over a 15-year period in $500 increments.

Vigeland: You say that that’s based on current law. Sounds like maybe there are some changes in the offing?

Degan: There are provisions in the Congress right now that the $7,500 would be forgiven, that the credit would really be a credit, you wouldn’t have to pay it back.

Vigeland: Well, we’re supposed to have more votes on the stimulus this week, so I guess we’ll see what happens. Frank Degan is an enrolled agent, which means that he is licensed by the IRS itself to represent taxpayers. Thanks so much for your help.

Degan: Thank you Tess.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.