Most people equate doing their annual income taxes to enduring a root canal.   We can’t say that we really blame them.  Even with some pretty cool tax preparation software out there, you still have to wrangle and organize all of those paper documents before you even get started.

OK, here are just some of the goodies that Uncle Sam setup for you for the 2009 tax year.

• First-Time Homebuyer Credit Expands. Homebuyers who purchased in 2009 can get a credit of up to $8,000 with no payback requirement. New legislation extends and expands this credit to homes purchased by April 30, 2010.

• Money Back for New Vehicle Purchases. Taxpayers who buy certain new vehicles in 2009 can deduct the state and local sales taxes they paid or other taxes and fees they paid in states with no sales tax.

• Education benefits. The new American opportunity credit and enhanced benefits for 529 college savings plans help families and students find ways to pay higher education expenses.

American Opportunity Credit

Audio file for podcast: Education Tax Breaks

Under the American Recovery and Reinvestment Act (ARRA), more parents and students will qualify over the next two years for a tax credit, the American Opportunity Credit, to pay for college expenses.

The new credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.

The American Recovery and Reinvestment Act of 2009 (ARRA) also added computer technology to the list of college expenses (tuition, books, etc.) that can be paid for by a 529 plan. For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services to be used by the designated beneficiary of the 529 plan while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature.

What “computer technology or equipment” refers to. This means any computer and related peripheral equipment. Related peripheral equipment is defined as any auxiliary machine (whether on-line or off-line) which is designed to be placed under the control of the central processing unit of a computer, such as a printer. This does not include equipment of a kind used primarily for amusement or entertainment. “Computer technology” also includes computer software used for educational purposes.

• Up to $2,400 in Unemployment Benefits Tax Free in 2009. Individuals should check their tax withholding.

Tax Exemption for Unemployment Benefits in 2009

Audio file for podcast: ARRA Tax Credits

Video: Unemployment Compensation

Under the American Recovery and Reinvestment Act (ARRA), the first $2,400 of unemployment benefits an individual receives in 2009 are tax free. This provision applies only to benefits received in 2009: Normally, unemployment benefits are taxable.

Individuals who receive unemployment benefits this year should check their withholding to ensure they are not having unnecessary tax withheld. IRS News Release 2009-29 has more detail on this provision.

For the full scoop from the IRS, visit this web site http://www.irs.gov/newsroom/article/0,,id=204335,00.html?portlet=6