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5 Mistakes People Make When Filing Old Tax Returns!








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5 Mistakes People Make When Filing Old Tax Returns!








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2009 Tax Law Highlights

Tax Credit of Up to $8,000 for First-time Home Buyers.
If you purchased a primary residence in 2009 before December 1, 2009 and are a “first-time” home buyer, you can qualify for a tax credit.  The credit is equal to 10% of up to $80,000 of the purchase price.

Eligibility:

  1. You must not have owned a residence in the U.S. in the previous three years.
  2. The credit phases out between $150,000 and $170,000 of adjusted gross income for joint filers $75,000 to $95,000 for single filers.
  3. The credit is refundable to the extent it exceeds your regular tax liability — which means that if it more than offsets your tax liability, you’ll get a refund check — but it does not offset the alternative minimum tax.
  4. You can elect to claim the credit for a 2009 home purchase on your 2008 tax return. (If you filed for 2008 before buying — but before the November 30 deadline – you can claim your credit by filing an amended return using Form 1040-X. Doing so will guarantee you a refund check.)
  5. Unlike the credit for 2008 purchases, the credit for 2009 purchases doesn’t have to be paid back ratably over 15 years. But you will have to repay the credit if you sell the house within three years of the date you bought it.

Payroll Tax Credit.

For 2009 Congress gave workers a credit of 6.2% of their earned income:

Capped at $400 for single filers and starts phasing out at $75,000 of adjusted gross income and stops at $95,000.

$800 for joint filers.  The phaseout zone for couples is $150,000 to $190,000.

Employees will get the credit in advance via lower income tax withholding in each paycheck, not as a rebate check.

Self-employed workers can reduce their quarterly estimated payments to get an advance benefit from the credit. The exact amount of the payroll tax credit for the year will be calculated on the filers’ tax returns.

Recipients of Social Security benefits, Railroad Retirement benefits, and Supplemental Security Income or veterans disability pensions will get a one time $250 check instead for 2009. Federal retirees who don’t receive any Social Security will also get a $250 check.

Sales Tax Deduction for New Vehicles.

Buyers of new vehicles can deduct the sales tax paid on the purchase, even if they don’t claim sales taxes as itemized deductions. They can add the tax they pay to their standard deduction. This break applies to vehicles purchased after February 16, 2009 and before January 1, 2010. Sales tax paid on the first $49,500 of cost qualifies. The benefit begins phasing out for married couples with AGIs over $250,000 and singles with adjusted gross incomes over $125,000, and is completely gone for single filers with adjusted gross income of $135,000 or more or joint filers with AGI of at least $260,000.

Itemizers who elect to deduct state sales taxes in lieu of state income taxes get no benefit from this change because the auto sales tax is already included in the sales tax deduction. Itemizers who deduct state income taxes will get a separate deduction for auto sales taxes; non-itemizers will add the sales tax amount to their standard deduction amount. 

Indexed Tax Brackets. Thanks to higher inflation in the past year, the 10%, 15%, 25%, 28%, 33% and 35% tax brackets all kick in at approximately 5% higher levels of income than in 2008. 

Larger Personal Exemptions. For 2009 each personal exemption you can claim is worth $3,650, up by $150 from 2008. 

Higher Standard Deductions. For 2009 the standard deduction for MFJ rises to $11,400, up by $500 from 2008. For single filers, the amount increases to $5,700 in 2009 up by $250 over 2008. And heads of household can claim $8,350 in 2009 a jump of $350 from 2008. Non-itemizers who pay real estate taxes can claim larger standard deductions. Joint filers can add in up to $1,000 of property taxes paid. Singles can add in up to $500 of real estate tax payments. Non-itemizers can also add any casualty losses that occurred in presidentially declared disaster areas. 

Reduction in Itemized Deductions and Personal Exemptions for High-Income Taxpayers.  The cutback in itemized deductions occurs once your adjusted gross income exceeds $166,800, regardless of your filing status. Your itemized deductions are reduced by 1% of the amount by which your AGI exceeds $166,800, but you can never lose more than 80 percent of your itemized deductions. Also, your medical expenses, investment interest deduction, deductible gambling losses and any casualty and theft losses are not subject to the cut.

Personal exemptions are reduced by 2% for each $2,500 of adjusted gross income over $250,200 for married filing jointly, $208,500 for heads of households and $166,800 for singles,

Tax-free Parking for Employees. Starting in 2009 firms can pay for $230 a month of parking tax free for employees, up $10 per month from 2008. The cap on tax-free transit passes is now $230 a month as well, the same as for parking. The limit had been $115 a month in 2008. 

Tax Credit for College Tuition. For 2009 the Hope credit is replaced by a new credit of up to $2,500 per student a year for four years of college.  It now also covers the cost of books and begins to phase out at $80,000 of adjusted gross income for single filers and $160,000 for joint filers. If the credit is more than your income tax liability, 40% of it is refundable.

Child Tax Credit. If the credit exceeds the filer’s tax liability, all or part of the credit will be refunded if the filer earns more than $3,000, down from $12,550. 

Earned Income Tax Credit. For families with three or more children, the maximum earned income tax credit for 2009 rises by $628.50. The phaseout of the credit for joint filers starts at higher income levels in 2009 allowing more of them to claim the credit. 

Higher Income Limits for Deductible IRAs and for Roth IRAs. If you are covered by a retirement plan at work, you can take a full IRA deduction in 2009 if your modified adjusted gross income is less than $89,000 (married filing jointly) or $55,000 (single or head of household).

A partial deduction is allowed until your adjusted gross income reaches $109,000 if you are married filing jointly or $75,000 if you are single or a head of household. Also, the opportunity to contribute to a Roth IRA is now phased out as your modified adjusted gross income rises

2008 Tax Law Highlights

Economic Stimulus Payments Tax Free

Economic stimulus payments are not taxable, and they are not reported on 2008 tax returns. However, the stimulus payment does affect whether a taxpayer can claim the Recovery Rebate Credit and how much credit he or she can get. The credit is figured like last year’s economic stimulus payment except that the amounts are based on tax year 2008 instead of 2007. A taxpayer may qualify for the Recovery Rebate Credit if, for example, she did not get an economic-stimulus payment or had a child in 2008. See Fact Sheet 2009-3 for details. In most cases, the IRS can figure the credit. The instructions for Forms 1040, 1040A and 1040EZ have more information.

AMT Exemption Increased for One Year

For tax-year 2008, Congress raised the alternative minimum tax exemption to the following levels:

  • $69,950 for a married couple filing a joint return and qualifying widows and widowers, up from $66,250 in 2007
  • $34,975 for a married person filing separately, up from $33,125 and
  • $46,200 for singles and heads of household, up from $44,350

Under current law, these exemption amounts will drop to $45,000, $22,500 and $33,750, respectively, in 2009. Form 6251 and the AMT Calculator provide more information.

Expiring Tax Breaks Renewed

Several popular tax breaks that expired at the end of 2007 were renewed for tax-years 2008 and 2009. As a result, eligible taxpayers can claim:

  • The deduction for state and local sales taxes on Form 1040 Schedule A , Line 5
  • The educator expense deduction on Form 1040, Line 23 or Form 1040A, Line 16
  • The tuition and fees deduction on Form 8917 and
  • The District of Columbia first-time homebuyer credit on Form 8859

In addition, the residential energy-efficient property credit is extended through 2016. In general, solar electric, solar water heating and fuel cell property qualify for this credit. Starting in 2008, small wind energy and geothermal heat pump property also qualify. Use Form 5695 to claim the credit.

The non-business energy property credit for insulation, exterior windows, exterior doors, furnaces, water heaters and other energy-saving improvements to a main home is not available in 2008 but will return in 2009.

Standard Deduction Increased for Most Taxpayers

Nearly two out of three taxpayers choose to take the standard deduction rather than itemizing deductions such as mortgage interest and charitable contributions. The basic standard deduction is:

  • $10,900 for married couples filing a joint return and qualifying widows and widowers, a $200 increase over 2007
  • $5,450 for singles and married individuals filing separate returns, up $100 and
  • $8,000 for heads of household, up $150

Higher amounts apply to blind people and senior citizens. The standard deduction is often reduced for a taxpayer who qualifies as someone else’s dependent.

New this year, taxpayers can claim an additional standard deduction, based on the state or local real-estate taxes paid in 2008. Taxes paid on foreign or business property do not count. The maximum deduction is $500, or $1,000 for joint filers.

Also new for 2008, a taxpayer can increase his standard deduction by the net disaster losses suffered from a federally declared disaster. A worksheet is available in the instructions for Forms 1040 and 1040A.

First-Time Homebuyer Credit

Those who bought a main home recently or are considering buying one may qualify for the first-time homebuyer credit. Normally, a taxpayer qualifies if she didn’t own a main home during the prior three years. This unique credit of up to $7,500 works much like a 15-year interest-free loan. It is available for a limited time only –– on homes bought from April 9, 2008, to June 30, 2009. It can be claimed on new Form 5405 and is repaid each year as an additional tax. Income limits and other special rules apply.

Tax Relief for Midwest Disaster Areas

Special tax relief related to severe storms, tornadoes or flooding, occurring after May 19, 2008, and before Aug. 1, 2008, is available to individuals in portions of Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin that were affected by these disasters. Tax benefits include:

  • Liberalized rules for certain personal casualty losses and charitable contributions
  • An additional exemption amount for persons who provided housing for someone displaced by these disasters
  • The option to use 2007 earned income to figure a 2008 earned income tax credit (EITC) and additional child tax credit
  • An increased charitable standard mileage rate for use of personal vehicle for volunteer work related to these disasters
  • Special rules for withdrawals and loans from IRAs and other qualified retirement plans

Details on these and other relief provisions are in Publication 4492-B  .

Contribution Limits Rise for IRAs and Other Retirement Plans

This filing season, more people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $53,000 and $63,000, compared to $52,000 and $62,000 last year.

For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $85,000 to $105,000, up from $83,000 to $103,000 last year.

Where an IRA contributor who is not covered by a workplace retirement plan is married to someone who is covered, the deduction is phased out if the couple’s income is between $159,000 and $169,000, up from $156,000 and $166,000 in 2007.

The phase-out range remains $0 to $10,000 for a married individual filing a separate return who is covered by a retirement plan at work.

The worksheet in the instructions for Form 1040 Line 32 or Form 1040A Line 17 can help a taxpayer figure the IRA deduction.

For 2008, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b) and most 457 plans remains unchanged at $15,500. This limit rises to $16,500 in 2009. The catch-up contribution limit for those aged 50 to 70-½ remains at $5,000 in 2008 but rises to $5,500 in 2009.

The AGI phase-out range for taxpayers who contribute to a Roth IRA is $159,000 to $169,000 for joint filers and qualifying widows and widowers, compared to $156,000 to $166,000 in 2007. For singles and heads of household, the comparable phase-out range is $101,000 to $116,000, compared to $99,000 to $114,000 in 2007.

Standard Mileage Rates Adjusted for 2008

The standard mileage rate for business use of a car, van, pick-up or panel truck is 50.5 cents per mile from Jan. 1, 2008, to June 30, 2008, up 2 cents from 2007. The rate is 58.5 cents for each mile driven during the rest of 2008.

From Jan. 1, 2008, to June 30, 2008, the standard mileage rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 19 cents per mile, down a penny from 2007. The rate is 27 cents from July 1 to Dec. 31.

The standard mileage rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile. As noted earlier, special rates apply to the Midwest disaster area.

Exemptions Rise

The value of each personal and dependency exemption is $3,500, up $100 from 2007. Most taxpayers can take personal exemptions for themselves and an additional exemption for each eligible dependent.

Earned Income Tax Credit Rises

The maximum earned income tax credit (EITC) is:

  • $4,824 for people with two or more qualifying children, up from $4,716 in 2007
  • $2,917 for those with one child, up from $2,853 last year and
  • $438 for people with no children, up from $428 in 2007.

Available to low and moderate income workers and working families, the EITC helps taxpayers whose incomes are below certain income thresholds, which in 2008 rise to:

  • $41,646 for those with two or more children
  • $36,995 for people with one child and
  • $15,880  for those with no children

One in six taxpayers claim the EITC, which, unlike most tax breaks, is refundable, meaning that individuals can get it even if they owe no tax and even if no tax is withheld from their paychecks.

Taxes Lowered for Many Investors

The five-percent tax rate on qualified dividends and net capital gains is reduced to zero. In general, this reduction applies to investors whose taxable income is below:

  • $65,100, if married filing jointly or qualifying widow or widower
  • $32,550, if single or married filing separately or
  • $43,650, if head of household.

Note that taxable income is normally less than total income. The worksheet for Form 1040 Line 44, Form 1040A Line x or Schedule D and its instructions provide details.

Kiddie Tax Revised

The tax on a child’s investment income applies if the child has investment income greater than $1,800 and is:

  • Under 18 old
  • 18 years of age and had earned income that was equal to or less than half of his or her total support in 2008 or
  • Over 18 and under 24, a student and during 2008 had earned income that was equal to or less than half of his or her total support.

Previously, the tax only applied to children under age 18. Form 8615 is used to figure this tax.

Self-Employment Tax Changes

For those who receive Social Security Retirement or disability benefits, any Conservation Reserve Program (CRP) payments are now exempt from the 15.3-percent social security self-employment tax. Schedule SE and its instructions and Publication 225, Farmer’s Tax Guide, have the details.

More farmers and self-employed people this year can choose the optional methods for figuring and paying the self-employment tax. These optional methods allow those with net losses or small amounts of business income a way to obtain up to four credits of Social Security coverage. The income thresholds for both the farm optional method and the nonfarm optional method are increased for 2008 and indexed for inflation in future years. Choosing an optional method may increase a taxpayer’s self-employment tax but it may also qualify him for the earned income tax credit, additional child tax credit, child and dependent care credit or self-employed health insurance deduction. Schedule SE and its instructions have details.

 

2007 Tax Law Highlights

Summary of 2007 Tax Changes:

  • Tax relief is available to struggling homeowners whose mortgage debt is forgiven.
  • Retirement savings incentives expand.
  • A new deduction is available for some mortgage insurance premiums. And
  • New recordkeeping rules apply to cash donations to charity.

AMT Exemption Increased for One Year
For tax-year 2007, Congress raised the alternative minimum tax exemption to $66,250 for a married couple filing a joint return, up from $62,550 in 2006. The exemption rises to $33,125 for a married person filing separately, up from $31,275, and it rises to $44,350 for singles and heads of household, up from $42,500. Under current law, these exemption amounts will drop to $45,000, $22,500 and $33,750, respectively, in 2008. Form 6251  

Extender Tax Breaks Reappear on IRS Forms
Eligible taxpayers will no longer have to follow special instructions in order to claim the deduction for state and local sales taxes, the educator expense deduction and the tuition and fees deduction.

Those who itemize, rather than taking the standard deduction, can choose to claim state and local sales taxes on Form 1040 Schedule A, Line 5.

The educator expense deduction is reported on Form 1040, Line 23 or Form 1040A, Line 16.

Taxpayers who choose to claim the tuition and fees deduction must fill out and attach new Form 8917. The resulting deduction is reported on Form 1040 Line 34 or Form 1040A Line 19. Note that many who qualify for the tuition and fees deduction may reap greater tax savings by instead claiming the Hope credit or the lifetime learning credit for a particular student. Figure these credits on Form 8863Publication 970 has details.

Contribution Limits Rise for IRAs and Other Retirement Plans
More people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan, with incomes between $52,000 and $62,000, compared to $50,000 to $60,000 last year. The phase-out range is $83,000 to $103,000, up from $75,000 to $85,000 last year, if the spouse making the IRA contribution is covered by a workplace retirement plan. Where an IRA contributor, not covered by a workplace retirement plan, is married to someone who is covered, the deduction is phased out if the couple’s income is between $156,000 and $166,000, up from $150,000 to $160,000 in 2006. The phase-out range remains $0 to $10,000 for a married individual filing a separate return who is covered by a retirement plan at work. Use the worksheet in the line instructions for Form 1040 Line 32 or Form 1040A Line 17 to figure the IRA deduction.

For 2007 and 2008, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b) and most 457 plans rises $500, to $15,500. The catch-up contribution limit for those aged 50 to 70-½ remains at $5,000. For SIMPLE plans, the limit is also up $500, to $10,500, and the catch-up limit remains $2,500.
This year income limits for the saver’s credit are adjusted for inflation. The saver’s credit supplements other tax benefits available to low- and- moderate income taxpayers who save for retirement. Begun in 2002 as a temporary provision, the saver’s credit is now a permanent part of the tax code. Use Form 8880 to claim the credit. 

Mortgage Insurance Premiums May be Deductible
Some borrowers may be able to deduct mortgage insurance premiums paid on mortgages taken out or refinanced during 2007. A borrower who prepays premiums for later years may deduct only the premiums that relate to 2007, except for prepayments for guarantees made by the Department of Veterans Affairs or the Rural Housing Service. Only mortgage insurance contracts issued during 2007, 2008, 2009 or 2010 qualify for this new itemized deduction. Proceeds of the mortgage, secured by a first or second home, must be used exclusively to buy, build or improve these homes, or alternatively, to refinance a mortgage, secured by the home and used for these purposes. Home-equity loans used for other purposes are not eligible. The deduction for mortgage insurance premiums is phased out for taxpayers with adjusted gross incomes exceeding $100,000 ($50,000, if married filing separately). Claim this deduction on Schedule A, Line 13. Further details are in Publication 936. 

New Rules for Giving to Charity
To deduct any charitable donation of money, taxpayers must have a bank record or a written communication from the recipient showing the name of the organization and the date and amount of the contribution.  Taxpayers are already required to keep records to support their contribution deductions.  See Publication 526. 

Standard Mileage Rates Adjusted for 2007
The standard mileage rate for business use of a car, van, pick-up or panel truck is 48.5 cents a mile, up 4 cents from 2006.

The standard mileage rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 20 cents a mile, up 2 cents over last year.

The standard mileage rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile. 

Inflation Adjustments for 2007
A complete rundown of inflation changes can be found at 2007 Inflation Adjustments Widen Tax Brackets, Change Tax Benefits.

Popular items adjusted include the following:

  • The value of each personal and dependency exemption is $3,400, up $100 from 2006. Most taxpayers can take personal exemptions for themselves and an additional exemption for each eligible dependent. An individual who qualifies as someone else’s dependent cannot claim a personal exemption, and personal and dependency exemptions are phased out for higher-income taxpayers.
  • The standard deduction is $10,700 for married couples filing a joint return and qualifying widow(er)s, a $400 increase over 2006; $5,350 for singles and married individuals filing separate returns, up $200; and $7,850 for heads of household, up $300. Higher amounts apply to blind people and senior citizens. The standard deduction is often reduced for a taxpayer who qualifies as someone else’s dependent. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions, and state and local taxes.
  • The maximum earned income tax credit is $4,716 for taxpayers with two or more qualifying children, $2,853 for those with one child and $428 for people with no children. Last year’s maximums were $4,536, $2,747 and $412, respectively. Available to low and moderate income workers and working families, the EITC helps taxpayers whose incomes are below certain income thresholds, which in 2007 rise to $39,783 for those with two or more children, $35,241 for people with one child and $14,590 for those with no children. One in six taxpayers claim the EITC, which unlike most tax breaks, is refundable, meaning that people can get it even if they owe no tax and even if no tax is taken out of their paychecks. 

Other Changes
Taxpayers can exclude up to $2 million of debt forgiven on their principal residence. The limit is $1 million for a married person filing a separate return. This provision applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure qualifies for this relief.

Employees working for employers who failed to withhold Social Security and Medicare taxes should use new Form 8919 to report and pay their share of these taxes. This includes section 530 employees — that is, people who work for employers claiming relief from federal payroll taxes under section 530 of the Revenue Act of 1978. It also includes employees who are treated as independent contractors but who have received a determination letter from the IRS which states they are employees.

Workers who believe they are misclassified as independent contractors can file Form SS-8 with the IRS and request a determination of their worker classification. For employees, the Social Security tax rate is 6.2 percent and the Medicare tax rate is 1.45 percent. Normally, employers withhold these taxes from workers’ pay, match these amounts and turn over the combined amounts to the IRS. Workers, properly classified as independent contractors, should not use Form 8919 but instead, continue to use Schedule SE. IRS Publication 1779 has further details on employee versus independent contractor status.

A retired public safety officer can exclude from income up to $3,000 in distributions from an eligible government retirement plan used to pay the premiums on accident and health insurance or long-term care insurance. Distributions must be made directly from the plan to the insurance provider. Retired law enforcement officers, firefighters, chaplains and members of rescue squads or ambulance crews qualify for this provision. Claim the exclusion on Form 1040 Line 16 or Form 1040A Line 12.

There’s no telephone tax refund for 2007, but it’s not too late to request this one-time refund on a 2006 return. Most telephone customers, including most cell-phone users, qualify for the refund. Eligible telephone customers who filed a 2006 tax return but overlooked this special excise tax refund can file an amended return using Form 1040X. Those who never filed for tax year 2006 can request it when they file their 2006 return. Phone customers, who don’t need to file a regular income-tax return, including many low-income people and senior citizens, can use a special short form, Form 1040EZ-T, to request the refund.

Compensated work therapy payments received by some veterans, unable to work, are now tax-free. Because these are tax-free veterans’ benefits, recipients will no longer receive Forms 1099, reporting these payments, from the Department of Veterans Affairs. Disabled veterans who paid tax on these benefits in 2004, 2005 and 2006 can claim a refund by filing an amended return using Form 1040X. See news release IR-2007-198 for details.

 

Related Information:

Where To Mail Past Tax Returns

Back in the day, when people listened to music on a Walkman or had to sit in front of a TV to catch their favorite show, the only way to file your tax return was to mail it to the IRS. Then technology took over and we became accustomed to e-filing our tax returns. But wait, what do you do when you have an old tax return or the IRS has shut down e-file? Well, you must mail it in my friend!

Shown below are the addresses where you can send your old tax return once you’ve finished preparing it. Note that you must send it to a different IRS Service Center depending on 1) if you are sending them money or not and 2) where you live. While the chart is pretty accurate, note that the IRS is always changing things.

As such, we advise you to check this handy map on the IRS site prior to sending in your return. You can also find the mailing addresses on the last few pages of Publication 17.

Where To File

2013 Federal Income Tax Rates

The tax rate schedules shown below are provided so you can see the tax rate that applies to all levels of taxable income for tax year 2013.  For detailed tax rates, please refer to this IRS tax table booklet.

 

2013 Rates

2012 Federal Income Tax Rates

The tax rate schedules shown below are provided so you can see the tax rate that applies to all levels of taxable income for tax year 2012.  For detailed tax rates, please refer to this IRS tax table booklet.

 

2012 Rates

2011 Federal Income Tax Rates

The tax rate schedules shown below are provided so you can see the tax rate that applies to all levels of taxable income for tax year 2011.  For detailed tax rates, please refer to this IRS tax table booklet.

 

2011 Rates

 

2010 Federal Income Tax Rates

The tax rate schedules shown below are provided so you can see the tax rate that applies to all levels of taxable income for tax year 2010.  For detailed tax rates, please refer to this IRS tax table booklet.

 

2010 Rates

2009 Federal Income Tax Rates

The tax rate schedules shown below are provided so you can see the tax rate that applies to all levels of taxable income for tax year 2009.  For detailed tax rates, please refer to this IRS tax table booklet.

 

2009 Rates

2008 Federal Income Tax Rates

The tax rate schedules shown below are provided so you can see the tax rate that applies to all levels of taxable income for tax year 2008.  For detailed tax rates, please refer to this IRS tax table booklet.

2008 Rates

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