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Tax Tips
Tax Tip for New Parents:
1. Apply for a Social Security number for your new child as soon as possible. Most hospitals will assist with this application.
2.
Remember to claim an exemption for your new child. You can claim an exemption
for the entire year for any child born before
3.
Also remember to claim the Child Tax Credit. For 2007, the credit is $1,000 and
directly reduces your tax. Any couple with less than $110,000 adjusted gross
income qualifies for the entire credit.
If both
parents work, there is a tax credit available to off-set child card expenses.
Tax breaks for helping out your parents.
You can claim an Extra Dependency Exemption for supporting your mother or
father. In 2007, the exemption is worth $3,400, $6,800 if you claim both your
mother and father. There are 2 requirements. First, the parent cannot have
gross income of more than $3,400. In figuring gross income, you do not include health and accident proceeds, deferred interest on
federal EE bonds, tax-exempt interest, gifts and inheritances and other
tax-exempt income. Second, you must provide more than one-half of the parents
support.
Failing to Itemize
Every year, only about 30% of taxpayers itemize deductions. A study finds that 2.2 million filers could cut their tax bills by claiming itemized deductions (such as mortgage interest, property taxes, and charitable contributions). Instead, they take the standard deduction.
If you did not itemize a return within the last three years, check to see if the total itemized deductions you could have claimed exceeded the standard deduction. If so, file IRS Form 1040x, Amended US Individual Income Tax Return, to take the extra deductions now and get a tax refund.
Education Tax Breaks
Hope scholarship tax credit is worth up to $1,650 of the cost of the first two years of postsecondary schooling incurred by a taxpayer.
Lifetime learning credit gives a tax credit equal to 20% of up to $10,000 of the cost of any instruction at a higher educational institution.
Home Office Deductions
You can now deduct a home office if you need it to maintain records for your business because you have no other office, even if you do not actually work in the office. Prior to 1999, a home office was deductible only if it was the principal place where you conducted a business.
Tax-Free gain on a home
The tax law lets you take totally tax-free gain of up to $250,000 ($500,000 on a joint return) on the sale of a home that has been your primary residence for two of the prior five years.
Dependent Care Tax Credit
If you and your spouse both work, you may be able to claim the dependent care tax credit for a child under age 13, even if you are “high earners”. The credit is available for the cost of child care that is necessary to enable you to work.
Mortgage Interest
You can deduct mortgage interest on a second residence and your primary residence. A boat or a motor home may be considered a second residence if it has living quarters, including beds, kitchen facilities and a bathroom.
Various Deductions:
1. Charitable contributions. Be sure you have adequate documentation for all charitable donations to avoid losing deductions for legitimate gifts you have made.
2. State taxes. Refunds of state taxes that are reported to the IRS on From 1099s are not necessarily taxable income on your federal income tax return. They are taxable only if you deducted a refunded tax in the year in which you originally paid it.
3. Investments. When calculating gain or loss on mutual funds or stock shares that were sold during 2007, don’t forget to include reinvested dividends in the cost basis of the sold shares. Failing to do so will unnecessarily increase your reported gain (or reduce your deductible loss.)
4. Medical expenses. These are deductible only to the extent that they exceed 7.5% of your adjusted gross income (AGI). But “big ticket” items bought for medical reasons may get you over the limit. For example, air conditioners and humidifiers. Even home improvements, such as central air-conditioning, elevators, remodeled bathrooms, and lap swimming pools, are deductible to the extent they do not increase a home’s value.
5. Employee business expenses. Employees can deduct unreimbursed employee business costs. For example, driving you car for work (other than commuting), business meals, business gifts up to $25 per recipient, subscriptions to work-related publications, work-related legal expenses, etc.
If you need additional information on these tax tips, or have questions on any tax matter, please call using the toll free number or email address provided with your membership materials.
Also, take advantage of our free review of last years’ tax return – and join the many that have saved hundreds of dollars by using this benefit.