Take Advantage of Tax-Free Income Opportunities

With tax rates almost certain to rise in coming years, now is a good time to focus in on tax-free income. The tax law has many situations in which you can receive income on a tax-free basis. Here is a roundup of items that are tax free for 2009, including any limitations that may apply:

Your Job

• Adoption costs paid by your employer up to $12,150
• Awards to certain employees (usually up to a limit of $1,600)
• Education assistance paid by your employer up to $5,250 if not job related or any amount if job related
• Dependent care expenses paid by an employer up to $5,000
• Foreign earned income exclusion up to $91,400
• Fringe benefits if they are de minimis, an employee discount, a working condition fringe, or a transportation fringe benefit
• Meals and lodging furnished on the employer's premises for the convenience of the employer
• Military benefits, including combat pay
• Minister's housing allowance
• Moving expenses paid or reimbursed by your employer
• Peace Corps payments for housing, food, utilities, and clothing
• Retirement planning advice paid by your employer
• Unemployment benefits up to $2,400

Your Investments

• Capital gains and capital gain distributions to those in the 10% or 15% tax bracket
• Dividends to those in the 10% or 15% tax bracket
• Interest on insurance dividends left on deposit with the Department of Veterans Affairs
• Municipal bond interest (other than interest on Build America Bonds)
• Renewal community or District of Columbia gain on certain business assets
• Small business stock gain up to 50% (70% for stock acquired after February 17, 2009, and before January 1, 2011; 60% for stock of corporations in empowerment zones)

Your Retirement Income

• IRA distributions up to $100,000 transferred to charity if you are at least 70¹/₂ years old
• Roth IRA withdrawals as long as you are over age 59¹/₂ or disabled and you've had the account for at least 5 years
• Social Security benefits if your income (including tax-free interest) is below set amounts
• IRA rollovers