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Tax Time is Here Again! Take Advantage of Some 2008 Return Changes!  |
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If you haven’t started already, it’s time again to start working on your taxes. Take a look at the following changes you’ll be incorporating into your 2008 Tax Return which is due April 15.
The bracket break: Washington has broadened the tax brackets somewhat, meaning that all tax brackets are set at levels of income that are roughly 2 percent higher than they were in 2007. Basically, the higher your income, the more you save as more dollars fall into lower brackets.
Personal exemptions up: The personal exemption -- which you claim for yourself and each dependent -- is $3,500 for 2008, up $100 from the previous tax year. If you are in the 25 percent bracket, it will save you $25 for each exemption you claim.
Standard deduction rises: The standard deduction will rise for each filing status. Singles get a $100 hike from 2007, to $5,450. Married couples filing jointly see their standard deduction rise to $10,900, $200 more than they claimed on 2007 returns. The standard deduction for heads of household who do not itemize deductions increases $150, to $8,000. If you do not itemize, and paid real property taxes, you will be able to increase your standard deduction by $500. if single, $1,000 if married filing jointly.
Disaster damage tax relief: The severe storms, tornadoes and hurricanes from spring through fall designated a surprisingly large number of counties around the nation as eligible for tax relief. To check if your community has been designated, go to the IRS website at www.IRS.gov.
New first-time homebuyer tax credit: Anyone who bought their first home after April 8, 2008 may qualify for a new tax credit equal to 10 percent of up to $75,000 of the purchase price. It doesn’t absolutely have to be your first home -- you’re eligible if you haven’t owned a residence in the U.S. in the previous three years. The credit phases out between $150,000 and $170,000 of adjusted gross income for joint filers and $75,000 to $95,000 for single filers. It is refundable if it exceeds your regular tax liability, but it doesn’t offset the alternative minimum tax if –- which means that if it more than offsets your tax liability, you'll get a refund check -- but does not offset the alternative minimum tax. Also, you should be aware that you need to repay this credit at roughly $500 a year until it is repaid, and if you sell before it’s repaid, you’ll end up repaying the balance the year you sell. However, if your profit on the sale is less than the remaining balance on the credit, the amount you have to repay is limited to your total profit.
Remember your retirement: If you and your spouse file jointly, by contributing to a traditional IRA each of you might be able to deduct up to $5,000 if you were under 50 by the end of 2008. If you were older by yearend, that deduction rises to $6,000. Keep in mind this deduction may be allowed (but may be limited) if you both were “active participants” in a retirement plan and your 2008 modified adjusted gross income (AGI) is less than $105,000 if married filing jointly or you are a qualifying widow or widower (or $63,000 if single).
If one of you is an active participant (check your W-2) and the other is not, then the one who is not active may still be allowed to make a deductible contribution if modified AGI is less than $169,000. Contributions must be made prior to the required filing date for your return. Some employer qualified plans may also allow large employee deductions prior to year’s end—if you can afford to make one, check with your plan administrator.
Bigger breaks on employer-paid parking and transit passes: Employees won’t be taxed on up to $220 a month of employer-paid parking, up $5 per month from 2007. The cap on tax-free transit passes their employers can give workers rises to $115 a month, up $5 a month from 2007.
AMT exemptions: For 2008, the exemptions on the alternative minimum tax are $46,200 for single taxpayers and heads of households, $69,950 for married couples filing joint returns, and $34,975 for married couples filing separately. Unless Congress steps in, the exemption levels will drop to $45,000 for married filing jointly, $33,750 for singles and heads of household, and $22,500 for married couples filing separately.
Direct Donations of IRAs to Charity. For 2008 and 2009, IRA investors age 70½ and older can donate up to $100,000 of their IRAs to charity without having to report the withdrawal as income.
One more point about IRAs: For 2009 only, you can choose not to take your Required Minimum Withdrawal from qualified plans or IRAs. This applies whether 2009 is your first year, or you have been withdrawing for a while. It does not apply if you postponed your 2008 First Required Minimum Distribution to the first quarter of 2009.
Information for this article provided by the Financial Planning Association (FPA). For more information about FPA, visit www.FPAnet.org or call 800.322.4237.
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