IRS offers end-of-year, money savings tipsThe Internal Revenue Service reminds taxpayers they have just a few weeks left to make final tax-related financial moves for the 2008 tax year.
The Internal Revenue Service reminds taxpayers they have just a few weeks left to make final tax-related financial moves for the 2008 tax year.
Taxpayers can take the first step toward tax planning by reviewing law changes and their tax situation. Some planning or action now could save time – and even money – later.
Make charitable contributions no later than December 31 to qualify for a 2008 tax deduction. Donations charged to a credit card or a check mailed by December 31 are considered deductible in 2008. Taxpayers seeking a deduction need to give to a qualified charity, have receipts or bank records for all cash donations, be sure donated clothing or household items are in good condition or better, and itemize deductions on their tax return.
Taxpayers at least 70-1/2 years old can make a tax-free transfer directly from an IRA to a tax-exempt charity without paying any tax on the distribution. The maximum allowed is $100,000. The contributions aren’t deductible, but the donated amount isn’t included in the taxpayer’s taxable income for the year.
Take advantage of the Saver’s Credit
Taxpayers who contribute to an IRA, 401(k) or similar workplace retirement plan and whose income is $53,000 or less may qualify for the Retirement Savings Contribution Credit or “Saver’s Credit.” The maximum 2008 credit is $2,000 for contributions made by December 31.
Sell the losers
Weigh the pros and cons of a portfolio adjustment before December 31. Taxpayers can deduct up to $3,000 in capital losses each year.
Nearly two-thirds of taxpayers take the standard deduction every year. Some could shave the amount going to Uncle Sam with a little more planning. Add up mortgage interest, real estate taxes, charitable contributions and other expenses that count as itemized deductions. Taxpayers who are close to the $5,450 standard deduction for 2008 ($8,000 for heads of household or $10,900 for joint filers) may benefit from “bundling” deductions into every other tax year. Do some homework or consult a tax professional to determine if, for example, making an extra mortgage payment or paying real estate taxes before December 31 instead of in 2009 would provide a tax benefit. And take note: Some homeowners who paid private mortgage insurance on a home purchased in 2007 or 2008 may be able to deduct those expenses when itemizing.
Consider new laws
The Economic Stimulus Act provided 117 million households with more than $95 billion in economic stimulus payments. Eligible taxpayers who did not receive a stimulus payment in 2008 will have a chance to claim the Recovery Rebate Credit in 2009.
The Housing and Economic Recovery Act offers a first-time homebuyer credit of up to $7,500 for qualifying taxpayers; the credit operates like an interest-free 15-year loan. The Act also offers a new additional standard deduction for state and local real property taxes for those who do not itemize deductions.
The Emergency Economic Stabilization Act includes several “extender” provisions that bring back many popular tax deductions and provides for 2008 Alternative Minimum Tax (AMT) relief to millions.
Among the extenders:
•Tuition and fees deduction – Taxpayers can deduct up to $4,000 of qualifying expenses paid to post-secondary institutions.
•State and local tax deduction – Itemizing taxpayers can choose whether to deduct state and local income tax or sales tax. This deduction is available to all, but is most beneficial to filers in states with no state income tax, like South Dakota. Remember to add the sales tax paid on qualifying big-ticket items purchased in 2008, such as a vehicle or boat.
•Teacher deduction – Educators can deduct up to $250 in out-of-pocket classroom expenses.
•Energy credits – Taxpayers may be able to take a credit of 30 percent of costs for qualified solar electric property, solar water heating property, and fuel cell property. Also, dozens of hybrid vehicle makes and models still offer tax credits for original buyers.
Accurate recordkeeping can save time and money. Establish a consistent place for incoming tax documents now – before they start arriving in the mail – and avoid the headache of hunting for misplaced documents later.
For more year-end information and to access IRS forms and publications, visit the IRS Web site at www.irs.gov.