Tax & Financial Planning Tips - March 2008

If you haven't contributed funds to an Individual Retirement Arrangement for tax year 2007, or if you’ve put in less than the maximum allowed, you still have time to contribute. You can contribute to either a traditional or Roth IRA until the April due date for filing your tax return for 2007, not including extensions.

Be sure to tell the IRA trustee that the contribution is for 2007. Otherwise, the trustee may report the contribution as being for 2008 when they get your funds.

Generally, you can contribute up to $4,000 of your earnings for 2007 or up to $5,000 if you are age 50 or older in 2007. You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.

Note: IRA Contributions limits increased $1,000 in 2008 to $5,000 or $6,000 if age 50 or older.

Traditional IRA: You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you — or your spouse, if filing jointly —are covered by an employer's pension plan

Roth IRA: You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution

You can file your tax return claiming a traditional IRA contribution before the contribution is actually made. However, the contribution must be made by the due date of your return, not including extensions. If you report a contribution to a traditional IRA on your return, but fail to contribute by the deadline, you must file an amended tax return by using Form 1040X, Amended U.S. Individual Income Tax Return. You must add the amount you deducted to your income on the amended return and pay the additional tax accordingly.

Did you know that you may be able to deduct certain taxes on your federal income tax return? You can receive these deductions if you file Form 1040 and itemize deductions on Schedule A. Deductions decrease the amount of income subject to taxation.

There are four types of deductible non-business taxes:

1. State and Local Income or Sales Taxes
   You can choose to claim a state and local tax deduction for either income or sales taxes on your return. You can deduct any estimated taxes paid to state or local governments and any prior year's state or local income tax as long as they were paid during the tax year.

   If deducting sales taxes instead, you may deduct actual expenses or use the optional tables provided by the IRS to determine your deduction amount, relieving you of the need to save receipts.

   Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate.

2. Real Estate Taxes
   Deductible real estate taxes are usually any state, local or foreign taxes on real property. If a portion of your monthly mortgage payment goes into an escrow account and your lender periodically pays your real estate taxes to local governments out of this account, you can deduct only the amount actually paid during the year to the taxing authorities.

   Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with this information.

3. Personal Property Taxes
   Personal property taxes are deductible when they are based on the value of personal property, such as a boat or car. To be deductible, the tax must be charged to you on a yearly basis, even if it is collected more than once a year or less than once a year.

4. Foreign Income Taxes
   Generally, you can take either a deduction or a tax credit for foreign income taxes, but not for taxes paid on income that is excluded from U.S. tax.

Call us for more information on non-business deductions for taxes, or see IRS Publication 17, Your Federal Income Tax, under Chapter 22, Taxes.

You may be able to take the Credit for the Elderly or the Disabled if you were age 65 or older at the end of 2007, or if you are retired on permanent and total disability. Like any other tax credit, it's a dollar-for-dollar reduction of your tax bill.

You can take the credit for the elderly or the disabled if:

• You are a Qualified Individual

• Your Adjusted Gross Income is less than specific limits depending on your filing status

• Your Nontaxable Income from Social Security or other nontaxable pension is less than specific limits depending on your filing status

Generally, you are a qualified individual for this credit if you are a U.S. citizen or resident at the end of the tax year and you are age 65 or older. Taxpayers younger than 65 qualify if they are retired on permanent and total disability, received taxable disability income, and did not reach mandatory retirement age before the beginning of the tax year.

Even if you do not retire formally, you are considered retired on disability when you have stopped working because of your disability.

If you are under 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. You do not have to file this statement with your tax return, but you must keep it for your records.

Use Schedule R, Form 1040, or Schedule 3, Form 1040A, to compute the credit. You cannot take the credit if you file Form 1040EZ.

Please call us for more information, including limits on AGI and Nontaxable Income, or see IRS Publication 524, Credit for the Elderly or the Disabled.

College Planning
If you have young children, review their college planning. Determine the amount you will need to accumulate by the time they enter college. Based on this estimate, establish or review your savings plan. Consider one or more of the tax-favored higher education programs.

Mortgage Review
Review your home mortgage. Are you paying too much interest? Consider the savings you could obtain by refinancing. Also look into the possibility of making mortgage payments twice a month or adding some principal to each payment to save on the interest cost. If you have other debt at higher interest rates, and the interest is non-deductible, consider paying off these debts with a home equity loan.

Required Minimum Distribution
If you were age 70-1/2 last year, and did not take the required minimum distribution from your retirement plans, prepare to take a withdrawal before April 1. Professional guidance will be helpful here.

Review Budget vs. Actuals
Compare February income and expenditures with your budget. Make adjustments as appropriate to your March expenditures. Make sure you have invested your planned savings amount for February.

Estimated Tax Payments
Total up your taxable income, capital gains and deductions for the first quarter. This information can be used to plan your estimated tax payments and perhaps avoid or minimize any underpayment penalties.