February 2008
Tax breaks
Find all you have coming
Illustration by
Bob Eckstein
Bob Eckstein
Much as we all enjoy a good tax break, a lot of us seem to miss out on one or more of them. For example, when the IRS offered
a one-time refund worth $30 to $60 per household last tax season to virtually anyone with a phone, nearly a third of eligible
Americans never even applied. As a result, they left some $3.8 billion on the table.
If some of that belongs to you, it's not too late to file for the telephone excise tax refund by amending your 2006 return. Go to www.irs.gov.
Meanwhile, here's how to make sure you don't miss out on anything this year.
Know your deductions. Reviewing last year's return is a good way to remind yourself of what you're probably due this tax season. Plus, there are some new provisions that might save you more. For example, any premiums you paid or accrued for a new mortgage insurance policy are deductible, though that phases out as adjusted gross income rises above $100,000 ($50,000 for married couples filing separately).
California residents affected by last year's wildfires, and anyone living in a place deemed a federal disaster area last year, can claim disaster-related casualty losses on their 2007 returns or amend a 2006 return to reflect those losses. You might want to put them on your 2006 return if, for example, the losses would help offset earnings that were greater in 2006 than in 2007. See IRS Publication 547 for details.
Keep in mind that for this year and thereafter, all charitable contributions, regardless of the amount, must be substantiated by a canceled check, bank record, or detailed receipt from the charity. For more information, see IRS Publication 526.
Tax tip: Check www.irs.gov for information on Congress' late changes to the Alternative Minimum Tax and copies of updated tax forms that are affected by the new law. The changes will affect as many as 13.5 million taxpayers, who will have to wait until Feb. 11 to file their tax forms, the IRS says.
Go electronic and file early. More than half of Americans now file their federal returns electronically, either by themselves or through a paid preparer. Among other benefits, you'll get a faster refund if you're due one. The IRS says it processes electronically filed returns and direct-deposits refunds in half the time it takes to process mailed returns and send a refund check.
The best-known software packages, Intuit's TurboTax Deluxe (federal and state), $45, and H&R Block's TaxCut Premium Federal +State, $40, don't change significantly from year to year in their basic operations. In the past, we've found both to be good for relatively simple returns. If you expect to report adjusted gross income of $54,000 or less, you can file free through one of some two dozen tax-software providers on the IRS's Free File Web site.
Tax tip: Jump-start this year's savings by having the IRS deposit all or a portion of your refund into a savings or investment account. The IRS now lets you split your direct-deposit refund among as many as three accounts, even if you don't file electronically. For details, see Form 8888.
Plump up your IRA. You still may be able to add to your 2007 refund or reduce what you owe the IRS by making a tax-deductible contribution to a traditional individual retirement account (IRA) or Simplified Employee Pension (SEP) IRA.
Note that even if you and your spouse participated in employer-sponsored 401(k) plans in 2007, you may be eligible for a tax deduction by contributing to an IRA.
In the last couple of years, the income ceiling for making such contributions has risen significantly, particularly for married couples filing jointly. The deduction now phases out completely when a couple's modified adjusted gross income reaches $103,000, vs. $80,000 just two years ago. For singles and heads of household, the deduction completely phases out at $62,000. For more details, see Publication 590.
Tax tip: If you're expecting a refund, file your return as early as possible. With any luck, you will get your refund in time to finance your 2007 IRA. You have until the end of business on April 15 to do it. But if you're among the 13.5 million taxpayers affected by the AMT legislation, your refund could be delayed, so don't count on having it in time.
If some of that belongs to you, it's not too late to file for the telephone excise tax refund by amending your 2006 return. Go to www.irs.gov.
Meanwhile, here's how to make sure you don't miss out on anything this year.
Know your deductions. Reviewing last year's return is a good way to remind yourself of what you're probably due this tax season. Plus, there are some new provisions that might save you more. For example, any premiums you paid or accrued for a new mortgage insurance policy are deductible, though that phases out as adjusted gross income rises above $100,000 ($50,000 for married couples filing separately).
California residents affected by last year's wildfires, and anyone living in a place deemed a federal disaster area last year, can claim disaster-related casualty losses on their 2007 returns or amend a 2006 return to reflect those losses. You might want to put them on your 2006 return if, for example, the losses would help offset earnings that were greater in 2006 than in 2007. See IRS Publication 547 for details.
Keep in mind that for this year and thereafter, all charitable contributions, regardless of the amount, must be substantiated by a canceled check, bank record, or detailed receipt from the charity. For more information, see IRS Publication 526.
Tax tip: Check www.irs.gov for information on Congress' late changes to the Alternative Minimum Tax and copies of updated tax forms that are affected by the new law. The changes will affect as many as 13.5 million taxpayers, who will have to wait until Feb. 11 to file their tax forms, the IRS says.
Go electronic and file early. More than half of Americans now file their federal returns electronically, either by themselves or through a paid preparer. Among other benefits, you'll get a faster refund if you're due one. The IRS says it processes electronically filed returns and direct-deposits refunds in half the time it takes to process mailed returns and send a refund check.
The best-known software packages, Intuit's TurboTax Deluxe (federal and state), $45, and H&R Block's TaxCut Premium Federal +State, $40, don't change significantly from year to year in their basic operations. In the past, we've found both to be good for relatively simple returns. If you expect to report adjusted gross income of $54,000 or less, you can file free through one of some two dozen tax-software providers on the IRS's Free File Web site.
Tax tip: Jump-start this year's savings by having the IRS deposit all or a portion of your refund into a savings or investment account. The IRS now lets you split your direct-deposit refund among as many as three accounts, even if you don't file electronically. For details, see Form 8888.
Plump up your IRA. You still may be able to add to your 2007 refund or reduce what you owe the IRS by making a tax-deductible contribution to a traditional individual retirement account (IRA) or Simplified Employee Pension (SEP) IRA.
Note that even if you and your spouse participated in employer-sponsored 401(k) plans in 2007, you may be eligible for a tax deduction by contributing to an IRA.
In the last couple of years, the income ceiling for making such contributions has risen significantly, particularly for married couples filing jointly. The deduction now phases out completely when a couple's modified adjusted gross income reaches $103,000, vs. $80,000 just two years ago. For singles and heads of household, the deduction completely phases out at $62,000. For more details, see Publication 590.
Tax tip: If you're expecting a refund, file your return as early as possible. With any luck, you will get your refund in time to finance your 2007 IRA. You have until the end of business on April 15 to do it. But if you're among the 13.5 million taxpayers affected by the AMT legislation, your refund could be delayed, so don't count on having it in time.
