Stimulus tax rebate second chance

Today, let me just remind you once again that if you want that cash in hand for upcoming holiday shopping, you better let the IRS know where to send it ASAP.

That's especially true if you're missing money is a rebate check. The IRS must have the correct delivery address by Nov. 28 or you won't see that money in 2008. The law creating the economic stimulus payments says that the money cannot be delivered after Dec. 31. And the IRS says the late-November address correction cut-off date will ensure that they get the checks out before the year's over.

You can track down your missing rebate, and get info on how to update your address, at IRS's "Where's My Stimulus Payment?" online status tool. Or you can call the IRS at (866) 234-2942.

Rebate 2008 in 2009: Obviously, the main reason to correct your address is to ensure that the IRS can send you your rebate check this year.

But there's another impetus. Even though, as noted in my story, you might be able to claim the rebate on your 2008 tax return that you'll file next year, the money won't automatically be distributed as a separate check.

In my story, I gave this example: "If you qualify for a $600 economic stimulus amount on your 2008 return and owe $1,000 in taxes, that $600 will be used to reduce your tax bill. You will not get the $600 as a separate payment."

That got Bankrate reader Judy thinking, and she dropped me a note to ask, "What if I qualify for that $600 but owe just $150 in my 2008 return? Will I receive a check with the difference or a roll-over credit for 2009?"

Judy, you are one astute tax blog reader! And I have good news for you and others in the same situation.

The Recovery Rebate Credit, as it's called on Form 1040 (and on Forms 1040A and 1040EZ, too) is a refundable credit. That means that any amount left over after your credit amount is applied to any tax you owe will be sent to you as a refund.

So, technically, you still could get your hands on rebate money next year. But it will be in the form of a regular tax refund that was produced by the rebate credit.

But if you're still waiting for your rebate check this year, make sure you get it now. In these tough times, a little extra cash always is welcome.

And it's always better for you to have control of your tax cash instead of letting it sit in an IRS account!

Obama's tax to-do list

Now for the big questions: How and when?

Some of that tax relief is already in the works. President-elect Barack Obama is talking with the Democratic leadership on Capitol Hill about a new stimulus plan.

But don't start spending a second rebate check yet.

Right now it looks like a lame-duck Congress will tackle a package aimed more at infrastructure projects. Spending on road and bridge construction would help create a million or more jobs, which in turn would boost the economy. It also might be easier to get approval from George W. Bush and the GOP members who will be considering legislation for the last time.

A second stimulus package then would be considered by the 111th Congress that will be seated in January. And that month Obama also will be settling into the Oval Office, ready to officially champion his tax-break campaign proposals.

So in the short term, expect to operate under our current Dubya-era tax laws, which include lower ordinary tax brackets, reduced capital gains and dividend tax rates and shrinking estate taxes. In fact, those laws will have a direct effect on any tax changes planned by Obama.

Most of Obama's proposed tax breaks were going to be funded in large part by letting the Bush tax cuts for individuals making more than $250,000 expire. That's scheduled to happen Dec. 31, 2010. That's also the day when all of Dubya's tax cuts are set to expire.

Yep, he left a "going away" present for future lawmakers, in essence telling them that they get to deal with the political and economic consequences of multiple tax laws expiring on the same day.

Economic meltdown tax effects: Obama also was counting on another revenue stream from rolling back Dubya's lower taxes on investment income. But that neat plan has been complicated and compromised by the financial and housing crises that completely exploded back in September.

When Obama first formulated his economic plans, he was talking about the country's situation before the financial services meltdown.

"Now we're talking not just about how bad things were back then, but how bad they've become since the campaign promises were made," says Bob D. Scharin, senior tax analyst from the Tax & Accounting business of Thomson Reuters.

"Given the weak stock market, would Obama push for a higher capital gains rate now?" asks Scharin. "The other thing to consider is that when Obama's revenue projections were made by increasing the tax rate, the economic considerations were a bit different. If Wall Street bonuses are smaller, people will have less in capital gains."

So despite the fears of folks who have lots of investment income, an upward shift in capital gains tax rates might not be as imminent as it once seemed.

Earlier estate planning: From a timing standpoint, the tax that affects the fewest people is the one that needs attention sooner rather than later. I'm talking, of course, about the estate tax.

Only about 2 percent of Americans have to deal with the estate tax each year, and they are disproportionately wealthy. But repeal of this tax has been a prime goal of the law's primarily Republican opponents, who like to refer to the levy as the "death tax."

The estate tax actually will disappear in 2010. That year, there will be no tax on any estate, regardless of its size. But on Jan. 1, 2011, it will resume, and at higher pre-Dubya tax cut rates.

So, says Scharin, expect lawmakers to focus on the estate tax next year. Don't be surprised to see Congress work out permanent changes which will leave the estate tax in place, for 2010 and beyond, but not at the pre-2001 higher rates.

Alternative tax's continuing troubles: Then there's the alternative minimum tax, or AMT.

When Democrats took control of the House in 2006, they had high hopes of getting rid of this costly parallel tax. That didn't happen. Instead, we once again got a one-year patch to take care of problems caused because the AMT isn't indexed for inflation.

Will Democrats in the upcoming Congress have more success in wiping out the AMT? Not likely. Even when the annual patches take millions off the AMT rolls, the tax still brings in beaucoup money.

Scharin says Congress could help itself and taxpayers by simply making a change that automatically indexed the AMT to inflation. Plus, he says, "if the regular tax rates are raised, some people will find that they will no longer face the AMT so it won't be that big of a problem."

Waiving required IRA distributions: One tax law change that could happen before the end of the year is the law requiring senior citizens take money out of their retirement accounts.

Known as required minimum distributions, or RMDs, the law now demands that by the end of the year owners of tax-deferred retirement plans such as IRAs or 401(k) accounts withdraw at least some money and pay taxes on it.

Obama (and his opponent John McCain) said during the campaign that it would be unfair to force seniors to sell investments in the current bear market to meet the RMD rules. The president-elect has suggested suspending the mandatory withdrawal rule, and its associated penalties and taxes, so that people could keep their money in their retirement accounts and possibly recover some of their losses when the market improves.

Rep. George Miller (D-Calif.), chairman of the House Committee on Education and Labor, already has asked Treasury Secretary Henry Paulson to suspend the RMD tax penalty. No word yet on whether Treasury will do this or if we'll have to wait for Congress to act.

Finishing up 2008: While we're all fascinated by what an Obama administration might mean for us and our taxes, remember that we've still got to deal with this year's taxes and existing tax laws.

I'm working on a story on tax moves to make before the end of this year. If you have some particular concerns or questions in this regard, drop me a note and I'll try to include them in the article.