No doubt in my mind, this is a time for change, especially when it comes to laws. Of course, I’ve been closely following the new bankruptcy law, now due for a vote in the U.S. Senate. Meanwhile, the latest tax bill is just a little over one month old. As a bankruptcy attorney in Indiana, I do a lot of reading in order to keep abreast of developments that affect people’s finances. And, while I’m more directly involved in the Homeowner Affordability and Stability Plan, which would allow bankruptcy judges to modify home mortgages, I want to keep my blog readers and Indiana bankruptcy clients up to speed on tax changes as well.

The American Recovery and Reinvestment Act of 2009 is the name of the new law, and it contains quite a number of important provisions. A professional colleague, Lana Fridman, CPA, was kind enough to break down these provisions for the benefit of my readers:

There are four tax credits:

“Making Work Pay”
This tax credit starts in June, and increases paychecks by about $13 per week in take-home pay (decreasing to $8 per week in 2010). Total credit limits are $400 per person, $800 per family.

“Not Working”
This tax credit gives nonworking people, including retirees and the disabled, a one-time, $250 payment.

“First Time Home Buyer”
For those who bought a home between April 9, 2008 and the end of 2008, the credit is $7,500. This credit must be paid back over 15 years, or when the home is sold (if sooner). For 2009 first home purchasers, the credit is $8,000, which will not need to be paid back so long as the homeowner stays in that home at least three years.

A $2,500 tax credit is available for those who pay at least $4,000 in tuition and fees for college.

In addition to the four credits, the law provides a new deduction for taxes paid to purchase a new car.

Speaking of taxes, one persistent myth is that bankruptcy can’t help with tax debts. In my earlier blog, “Oh, Yes, You Can Get Rid Of Back Taxes”,
I debunked that very myth, explaining that taxes more than three years overdue can, in fact, sometimes be discharged in bankruptcy.

With all the changes, it’s wise to consult experienced legal and tax advisers in order to use the new rules to your best advantage. One thing’s for sure – (to paraphrase Chubby Checker), there’s a whole lot of tax and bankruptcy law shakin’ goin’ on!