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Contribute to Retirement Accounts--be sure to do so
by April 15, 2008--the deadline for any type of IRA, deductible or not. Keogh's and SEP's can wait until
your extension deadline. |
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If you make a deductible contribution, not only will you lower your tax bill,
but the money will compound tax-deferred. If you qualify for the full deduction, you must either |
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not be eligible to participate in a company retirement plan, or |
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have adjusted gross income of less than $52,000 if single or $83,000 for married couples
filing jointly. If you are not eligible, your spouse can be if your total combined gross income is less
than $166,000. |
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The savings can be substantial -- for example, if you are in the 25% tax
bracket, you will save $1000 in taxes the first year if you make the full contribution of $4000. The
savings are greater if you are 50 or older by the end of the year. |
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ANOTHER IDEA:
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Now, let’s say you have a child, age 15, who has earned $1,000 mowing yards-why
not put the money into a ROTH IRA for the child? At a compounded interest rate of
8% per year, this single $1,000 contribution will be worth approximately $46,900
tax free at age 65! How’s that for a savings plan!
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Can you itemize? |
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Years ago, if you had mortgage interest, you almost
automatically itemized. Now, tax laws have changed all that. You do not necessarily
lose out by taking the standard deduction. Please keep in mind that you get the
greater of the standard deduction ($10,700 for Married Filing Joint, $5,350 for
singles for 2007 tax year), or your itemized deductions.
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It is amazing how many folks will NOT have enough, even
with mortgage interest. Remember, you get the largest deduction, itemized or standard.
Memphis Tax Lady will automatically determine the best option for you, depending on
your situation. This is where good advice from a professional is worth the money,
as there are still some “little-known” deductions still out there... if you qualify.
Generally, the laws are the same for itemizing as they were last year, EXCEPT FOR
ONE THING—CHARITABLE CONTRIBUTIONS- Now, no matter how little- you have to prove
your cash contributions – name of charity, amount, date—all have to be documented
either by bank record or letter from the charity. |
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| 3- |
File and Pay on Time—Actually,
just pay on time as the IRS doesn't give a hoot when you file, as long as you file an
extension (Form 4868) which extends until October 15. |
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If you still owe money after April 15, the IRS will charge
around 7 percent, as well as a half-percent penalty per month. If you do not extend,
the IRS will also hit you with a penalty of 4.5 percent per month, maximizing at 25%.
If you believe you will owe money, the very best thing for you to do is make quarterly
payments--especially if you received a large gain from selling stock, or your withholding
is wrong at work. I have prepared many returns in which someone only worked part-time,
or didn't make very much money. In this case, the withholding amount is very low. That
is not the employer's fault-they are merely using the table. However, the table does not
take into consideration the other spouse's income which may be quite a bit higher. If
one or both spouses are claiming Married and 1 or even worse 2, they may be in for a
nasty surprise. |
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This is where a tax professional (such as Memphis Tax Lady, of course) can help
you. Call or email the information from your "middle of the year" pay stubs. Then,
you can get an estimate of your refund, or (yikes) what you owe. You can then
either adjust your withholding at work, or make an estimated payment. |
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| 4- |
Look out-the government may not act in time—THE
AMT strikes again! |
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As of this writing, unless Congress acts, you may be affected by something
you’ve not heard of-THE AMT (alternative minimum tax). What it is, basically, is a tax that was designed
to keep the wealthy from getting off “tax free”. Under the guidelines, you pay the greater of your
regular tax or the AMT. Now, due to inflation and the discontinuance of other allowed credits, you don’t
have to be “wealthy” to be faced with this AMT tax—in fact, unless Congress changes the law by the end of
2007, millions of “middle class” taxpayers will be impacted (over 23 million taxpayers this year, up from
4 million last year). This is why you need a tax preparer (like the Memphis Tax Lady, of course) who can
determine if you are affected or not. |
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Last, but certainly not least--ORGANIZE your records. |
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You'd be surprised how many folks lose deductions by not keeping their records
straight. Remember, if you have to amend (change) your return after it has been filed, it will cost you more
in tax preparation fees. Tax preparers also normally charge more if they have to go through garbage sacks
to dig out your records. Do the work yourself and save money. If you simply keep a filing system of some
kind with folders for tax info, it isn't that hard or time-consuming at the end of the year. Also, please
be sure you include ALL of your W-2's, etc. I have had clients who had numerous jobs, and swore up and
down they had given me all their W2's, only to find out they had forgotten one, or they got one in at the
last minute. Your employer has until the end of January to give you your W-2. File early, but make sure
you have everything. Otherwise, you may have to amend or change your return, and have to pay back some of
your refund (not to mention the tax-prep fee, of course) Most tax preparers will amend or change a tax
return free of charge if the fault is theirs, but charge you if the fault is yours. |
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