Tax time coming soon
Wow, it is almost Christmas time and we all know what them means. A new year will be starting soon and we will need to put together another Tax Return. I know some people like to do their own tax returns and some hire their own tax person to do it for them. If you are doing it your self there is a lot of tools available to you on the Internet or at a book store. I will always recommend that you hire a tax person. I feel the cost will pay you back in money and peace of mind. Here is some good tax tips I read the other day:
Year-End Tax Moves Will Lower Your Bill
After a rocky 2008, your nest egg may be a little smaller and your gas bill may be a little bigger. But there is one reliable way to save money: taking steps to trim your tax bill.
Once you’ve eaten the last of those Thanksgiving leftovers, it’s time to pull out your financial records for a little year-end tax planning. The best place to start is with your investment records. You’ll want to use your capital losses to offset capital gains in your taxable accounts. You can also use excess losses to offset $3,000 in income.
But there are many more moves you can make before you celebrate the New Year.
Determine your bracket. To make the most of year-end planning, you need to have a good idea of your tax bracket for 2008 and for 2009. If you’re likely to be in the same bracket both years, push any income you can into 2009 and pull deductions into 2008. You might wind up paying the same amount of tax in total, but it’s better to pay it later rather than sooner. If you’re likely to be in a higher bracket next year — thanks to a raise or a planned investment sale — you might be better off pulling income into 2008 and pushing deductions into 2009, when they’ll be more valuable.
As for strategies for shifting income, Robert Jazwinski, president of JFS Wealth Advisors in Hermitage, Pa., says that self-employed workers “can delay billing for clients so that the receipts come in next year.” Another tip: You can make your January mortgage payment in either December or January, in whichever year makes the mortgage-interest deduction most valuable.
Special rules apply if you’ll be hit by the alternative minimum tax. If you fell under the AMT last year, there’s a good chance you will in 2008. Deductions for state and local taxes don’t count under the AMT, so you don’t want to accelerate any tax payments into 2008. Also, the top rate for the AMT is 28%, compared with the top rate of 35% for other taxpayers, so you might have added incentive for taking income this year while delaying deductions.
Help others, and yourself. As part of the financial rescue package, Congress extended a popular tax break through the 2009 tax year. IRA owners 70 1/2 and older can transfer up to $100,000 from their retirement account directly to a charity. As long as the money goes directly to the charity, it won’t show up in your taxable income.
Consider giving appreciated securities instead of cash. When you give away assets that you’ve owned more than a year, you can deduct the full market value — and you don’t have to pay tax on the gains.
Say you’re in the 25% tax bracket and want to donate $30,000 to charity. If you give cash and deduct the contribution, you save $7,500. If you give away $30,000 in stock that you bought for $5,000, you’d deduct the $7,500, and you avoid the 15% capital-gains tax you’d owe if you sold the stock — for added savings of $3,750.
Donating securities can take time to process, so don’t wait too long. You can’t claim the deduction until it shows up in the charity’s account.
William Baldwin, president of Pillar Financial Advisors in Waltham, Mass., says that a donor-advised fund is a good option for donors who want to maximize contributions but don’t have the time now to select individual charities. You donate the stock or cash and take the deduction in 2008, but can direct the money to charities later.
Baldwin offers a suggestion to lower a big tax bill even more. Let’s say you donate $30,000 every year to Harvard. “Why not give $30,000 to Harvard by December 31 and give another $30,000 to a donor-advised fund?” he says. “You get next year’s deduction now.”
Those who are short on cash can make their contributions by credit card. “Even if you don’t pay the bill until January, you can still take the deduction in December,” says Bob Scharin, senior tax analyst for Thomson Reuters, a business-information group.
If you’re giving cash, note that the rules have changed. For cash donations of $250 or more, you need a written acknowledgement from the charity. For cash donations of less than $250, a canceled check, bank statement or credit-card receipt will also suffice. As for used cars, your write-off is generally limited to what the charity sells the vehicle for. However, you can deduct the fair market value if the charity keeps the car to carry out its mission, such as driving the sick to the doctor.
Max out your retirement accounts. You can trim your tax bill by maximizing pretax contributions to retirement accounts. For 2008, you can contribute up to $15,500 to your 401(k) or 403(b); if you’re 50 or older, you can sock away an extra $5,000. If you’re not maxing out already, try to steer all or part of your year-end bonus to your account.
If you don’t have a workplace retirement plan, contribute up to $5,000, plus another $1,000 if you’re 50 or older, to a traditional IRA. You can contribute before filing your 2008 return next spring.
Pinpoint your RMDs. If you’re taking required minimum distributions from your IRA, be sure to take the appropriate withdrawal by December 31. If you don’t, the IRS will impose a 50% penalty on the amount that should have come out of the account.
For those who turned 70 before July of this year, it’s time to start taking RMDs from 401(k)s and IRAs. You can delay the 2008 distribution until April 1 of 2009. But you’ll still need to take your 2009 withdrawal in 2009. “If you do defer, then you will have two RMDs in one year, and that could push you into a higher tax bracket,” warns Jazwinski.
Strategy for O% taxpayers. This is the first year for tax-free investment profits for taxpayers in the 10% and 15% tax brackets — couples with taxable incomes of up to $65,100 and individuals with incomes up to $32,550. For 2008, 2009 and 2010, rather than pay 5% tax on their long-term capital gains, their rate is the sweetest possible: 0%.
The 0% rate only applies to gains that fall in the 10% or 15% bracket. So if you realize a big gain at year-end that pushes you into the 25% bracket, only part of your gain will be tax-free. Let’s say you’re married and your taxable income for 2008 is $50,000. But at year-end, you sell equity shares for a $20,000 gain. The first $15,100 (the amount that takes you to the top of the 15% bracket) would be tax-free; the rest would be hit with the 15% capital-gains tax.
Making moves now to reduce your taxable income can keep you in the lower brackets. Charitable contributions or hikes in your 401(k) contributions would reduce your taxable income for the year.
New homeowner breaks. There’s a new tax break for homeowners who don’t itemize deductions — the chance for married taxpayers to deduct up to $1,000 of property taxes in addition to their standard deduction ($500 for singles). Homeowners also get another chance to claim a tax credit of up to $500 for installation of energy-efficient windows and doors.
If you’re thinking of selling your principal residence and moving into your vacation home, this may be the year to do it. Under current law, couples who move into their vacation home for at least two years and later sell it can exclude up to $500,000 ($250,000 for individuals) of the profit from taxes. For conversions starting January 1, part of the profit will be taxed. To determine the taxable portion, you will need to figure the ratio of the time after 2008 that the house was used as a vacation home to the total period you owned it.
Source: Kiplinger.com
Tax Help
If you decide to hire someone you can shop around and find someone you are comfortable with. Ask your friends who they recommend. There are large companies out there like H & R Block which do a good job also. I am not a tax accountant or a CPA, but I do recommend having someone do your taxes for you. You may say I have always done it myself and I know all the exemptions I can claim, but the laws change so much every year it is easy to miss something which could easily cover any cost of having someone do your taxes for you. Then you can sleep better knowing someone else prepared it for you also. Let me know your thoughts and ideas. Have a great week.
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