Will Power
If you don't have a will, your state has one for you - and it is probably not what you would have chosen. Make sure that your loved ones and assets are protected by taking the time to prepare a will. If you already have a will in place, it is a good idea to review it periodically to ensure that it is up to date with your financial and family information.
Expect The Best, Prepare For The Worst
You can never fully prepare for a disaster, but there is one simple thing that you can do that will make things a lot easier financially if disaster does strike. Making a home inventory complete with serial numbers and pictures of the most valuable items will make filing an insurance claim much easier and much more complete in the event of a catastrophic fire or natural disaster. Just make sure that you keep the list somewhere safe, preferably not in your home. Take it to work, a bank lock box, or give it to a friend or family member for safekeeping and easy recovery in an emergency.
Penalties Can Add Up
One easy way to lower your overall tax bill is to make sure that you pay in enough tax over the course of the year to avoid paying the interest based penalty for underpayment of tax. The surest method to avoid the penalty is to pay through withholding and estimated tax payments at least as much tax as you paid in total on your tax return for the year before. If your income this year was more than $150,000 then next year you must pay in at least 110% of this year's tax in order to be safe from the penalty provisions . The other element is that your estimated tax payments must be made by the quarterly due dates of April 15, June 15, September 15, and January 15. Withholding can be made any time and is presumed to have been made on a timely basis through out the year.
Estimated Payments
Making quarterly payments of estimated tax may help to ease the burden of a large balance due on April 15th. If you have income sources such as investment income or income from self-employment that are not subject to withholding, it may be wise to submit payments throughout the year using Form 1040-ES.
Lifetime Opportunity
The Lifetime Learning Credit will provide a tax credit for 20% of educational expenses up to $10,000. The maximum credit available per year is $2,000 regardless of the number of students and applies to the post secondary education expenses of you, your spouse and your dependents. The credit is eligible for most educational expenses from graduate degree courses to noncredit courses that help acquire or improve job skills. There is also no limit on the course load. One course is all that is necessary to be eligible.
It's A Win-Win-Win Situation
Give your excess clothing and household items to charity. By donating your unwanted items, you may be entitled to deduct the "Fair Market Value" of the items donated on your return. It is a great way to clean out your closets, help a worthwhile charity, and get a tax break. Make sure to keep some documentation of what was contributed and get a dated receipt from the organization that shows that a donation was made. To be deductible the items donated must be in good used condition or better.
Home Office Deduction
If you use a portion of your home for bus ines s purposes , you may be able to deduct a portion of your home expenses. To qualify, the space must be your principal place of business and must be used regularly and exclusively for your trade or business. However, the exclusive part does not apply to space used for storing inventory or samples.
Deductible IRA
You may be able to benefit from a traditional deductible IRA contribution. The principal benefit from the IRA contribution is being able to deduct the amount of the contribution from your tax return. The second, longer term tax benefit, is that the funds inside the IRA will continue to grow free from tax, which will bolster the rate of return when compared to traditional taxable investments.
Hybrid Cars and Alternative Motor Vehicles
If you plan on purchasing a new car, consider a hybrid vehicle. You may be able to take a credit for certain hybrid, fuel cell, advanced lean-burn, and alternative fuel vehicles place in service during the year. The credit is only available to the original purchaser of a new, qualifying vehicle. The amount of the credit is based on the Year, Make, and Model of the vehicle as well as when the vehicle was purchased. Based on your information for this year, the following tax law changes taking effect in 2008 may be applicable to your tax situation.
Tuition and Fees Deduction
You cannot take a deduction for qualified tuition and fees paid in 2008. But you may be able to take the Hope Credit or Lifetime Learning Credit for those expenses instead.
IRA Contribution and Deduction Limits
The contribution limit to a traditional or Roth IRA for 2008 increases to $5,000. If you reach age 50 before 2008, this limit is increased to $6,000. Individuals that are covered by a retirement plan at work may only make deductible IRA contributions if their income meets certain thresholds. For 2008, that threshold is $63,000 if single and $105,000 if married filing jointly or qualifying widow(er).
Standard Deduction
If you do not itemize your deductions, you may claim the standard deduction which varies according to your filing status. The 2008 standard deduction amount for your filing status is $5,450.
Personal exemption amount
In 2008, you will be allowed to deduct $3,500 for each person claimed on your return.
Social Security Maximum
The maximum amount of wages or self-employment earnings that will be subject to the social security tax will increas e to $102,000 in 2008. Section 179 The maximum section 179 deduction you can elect for property placed in service in 2008 will increase to $128,000. This amount will be reduced when the cost of section 179 property placed in service during the year exceeds $510,000.
Capital Gain Tax Rate Reduced
For 2008 the 5% capital gain tax rate is reduced to zero. This will apply to taxpayers in the 10% and 15% tax brackets in 2008 who either have qualified dividend income or long term capital gain income. This 0% rate will only apply to capital gain income that fits into these lower brackets. If the capital gain income pushes you into the 25% or higher brackets the portion that falls into these higher brackets will be taxed at the 15% rate.
Forgiveness of Mortgage Debt
A new law has passed that may allow distressed homeowners to exclude from income part or all of the mortgage debt forgiven on a principal residence. This applies for debt forgiven in 2007 through 2009. Please call my office for more details on these debt relief and your personal situation.