Top 10 Tax Tips
1. Sales taxes: Under recent tax law changes you will have the choice of either deducting your state and local income taxes or your state and local sales taxes on your 2007 tax return. Review your receipts for the year, if they're available, or see the sales tax tables issued by the IRS based on your income, family size, etc. (Publication 600) to determine whether you're better off deducting sales tax as an itemized deduction.
2. Retirement Plan: Maximize your retirment plan contributions: In general, the IRS allows you to contribute up to $15,500 in a 401(k) plan if you are under 50 (up to $20,500 if you are over 50). You can offset your taxes by up to $500 this year for instituting a qualified retirement plan for your business. Use up your Flexible Spending Account (FSA): If you still have money left in your FSA, don't let it go to waste. Stock up on qualified over-the-counter medications, get new glasses or contacts, or see your dentist. Please check with your employer to see if they offer a 2 1/2 month grace period to spend your flex funds.
3. Home Mortgage Refinance: If you refinanced a home mortgage in 2007 and it is a subsequent refinancing (you've already refinanced your original mortgage used to purchase the home), points paid on the prior refinancing become fully deductible on your 2007 return.
4. Education Savings: Want to contribute to a Coverdell education savings account for your child or grandchild? You can make 2007 contributions of up to $2,000 as late as April 15, 2008.
5. Charitable contributions: Donating clothing and household goods by Dec. 31, 2007 will allow you to deduct the fair market value of those donations on your 2007 taxes. Also, don't forget that for all cash donations and donations of goods worth over $250, you must now have a bank record or written communication from the charity in order to take the deduction.
6. Misc. Deductions: Even if you claim the standard deduction instead of itemizing personal deductions, don't overlook adjustments to gross income to which you may be entitled. Some often overlooked deductions include moving expenses, tuition and fees for higher education, teacher expenses, purchase of a hybrid car and deductible IRA contributions. If you have any investments that have generated deductible losses, you can use the losses to offset any gains. You can use $3,000 of net capital losses in excess of capital gains to offset ordinary income. Go Green - This is the last year to claim a credit for the purchase of qualified energy efficiency improvements to your existing home (including a new furnace, air conditioner, windows, doors, and insulation) or for the purchase of a residential solar water heating, photovoltaic equipment, or fuel cell power.
7. Dividend income: Check Form 1099-DIV to determine which dividends from mutual funds qualify for the maximum 15% tax rate. Check the box “qualified” to figure which dividends are paid from permissible sources—you must also determine whether you've held the shares on which the dividends are paid for more than 60 days during the 121-day period surrounding the ex-dividend date.
8. Disaster loss: You can claim the loss on your 2007 tax return or on an amended 2006 return. Select the year in which your adjusted gross income was lower so that your disaster loss deduction will give you a greater write-off and more tax savings.
9. Car business use: You might be able to use the actual expense method or the IRS standard mileage rate (44.5 cents) to deduct your car expenses. You need proof of the costs incurred for business driving, select the method that gives you the greater write-off. If you don't have this proof, rely on the IRS standard mileage rate.
10. Business equipment depreciation. Did you purchase new business equipment for your business in 2007? Select the method for writing off its cost that will provide the greatest tax benefit.
Information provided is thought to be reliable but is not guaranteed to be accurate.
