Year-end tax game: Act now to win on 2008 tax breaksWASHINGTON – Nov. 3, 2008 –The end of the year is just around the corner, and it’s time to look back, look ahead and do your best to beat Uncle Sam at the tax game. This year, we saw these changes, beneficial to the taxpayer:Housing Act:If you don’t itemize your deductions on your federal tax return for 2008, you can still take a property tax deduction on your real estate to increase your standard deduction. You’ll find that bonus on Page 2 of your 1040.
Also, if you are a first-time homebuyer (haven’t owned a home for at least three years), you’ll get a new credit if you purchased your home after April 8, 2008. (The credit applies into next year, too, for a home purchased before July 1, 2009.)
Your deduction is the lesser of these two options: 10 percent of the purchase price, or $7,500 (if married filing jointly or single, head of household), $3,750 (if married filing separately). This credit phases out if your income tops $150,000 (if married filing jointly or single, head of household) or $75,000 (if married filing separately).The credit operates like an interest-free loan and must be paid back over 15 years in equal annual installments, beginning the second year after you claim it.
It doesn’t apply to vacation or rental property – only to primary residences.
The new law reintroduces the 50 percent bonus depreciation on personal property, which was initiated after 9/11 to boost personal spending but expired in 2005. While mostly used by businesses, if you have a rental property, you can now take 50 percent of the purchase price of any personal property such as a stove or refrigerator for the rental. There is no cap on this.
Mileage deduction rates:The mileage deduction rate changed twice – January and July.
Business miles are deducted at 50.5 cents per mile before July 1, 58.5 cents per mile after July 1.
Medical miles (going to and from doctors, lab tests, etc.) are deducted at 19 cents per mile before July 1, 27 cents per mile after July 1.
Also deductible are miles driven to make charitable donations. They stayed at 14 cents per mile, but remember, if you’re eating up gas miles while out and about, stop to drop off a donation, and you’ll get an extra deduction for your miles.
Smart moves Certified public accountant Sheryl Brown of Taking Care of Business recommends these strategies for reducing your tax bill:Market losses:If you sustained market losses in your investments this year and decide to pare off losers, do so before year-end. You not only get to offset these losses against capital gains in your securities transactions, but you also can take off another $3,000 (if married filing jointly or single, head of household) or $1,500 (if married filing separately) against your personal income, as well as carry forward additional losses for future years.
If you have profits in your investments, some with multiple purchase prices within the same stock or mutual fund, sell your highest cost shares, thereby reducing the capital gain that will be taxed.
Incidentally, investments held less than one year (short-term) are taxed at your usual marginal tax bracket, but those held a year or longer garner long-term capital gains, which in 2008 are taxed at the relatively low rate of 15 percent if you’re in the 25 percent marginal tax rate or higher. Starting this year, there is no tax on long-term capital gains if you are in the 10 percent or 15 percent tax brackets.
Retirement contributions:Get 2008 contributions into your retirement plans by the end of the year, if they are solo 401(k) (your own business) and traditional 401(k) (you work for someone else).
With Roth and traditional IRAs, you have until April 15, 2009, to make your 2008 contribution. If you’re thinking of setting up a SEP IRA, it must be established by Dec. 31, but you have until April 15 to make your contribution.
Max out your retirement plan if you can: $15,500 for 401(k), $20,500 if you’re 50-plus; $5,000 for Roth and traditional IRAs, $6,000 if you’re 50-plus. If you’re older than 70, you also must elect to take your Minimum Required Distributions from your retirement plan by Dec. 31. (The first year you can wait until April 1 of the year after you turn 70).
Late withdrawals earn a 50 percent penalty.
Educational tax credits:If you are a student or have student, remember that educational tax credits are dollar-for dollar against your taxes for qualified educational expenses.
The Hope Credit is $1,650. The Lifetime Learning Credit is $2,000.
There are also income tax deductions for tuition and fees, though you’re limited to choosing one of these three options per student per year.
Get it together-Don’t wait until 2009 to get a picture on your taxes.If you’re itemizing deductions, get your receipts in order now.
If you use an accountant, schedule a visit now.
You may need to push excess income into next year or take more deductions in 2008.
You may want to make charitable donations and costly medical visits before the year’s end to count for 2008.
If you can see that you’ve underestimated your quarterly estimated tax payments, you can escalate your payment for the fourth quarter of 2008.
Get advice and plan now. Good luck!
This article is a post from Floridarealtors.org...hope it helps.
2008 © Albuquerque Journal; via ProQuest Information and Learning Company; All Rights Reserved. Carol Akright is a Certified Financial Planner, CFP (TM) and Registered Principal with Financial Network Investment Corp.
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