Tax Time

Tax Talk: Here’s what is new for the 2008 Tax Filing Season

With tax time just around the corner, now is the times to consider whether you want to claim the standard deduction or file an itemized income tax return.  Why?  Often overlooked deductions can make a huge difference in lowering your tax bill if you itemize.

The standard deduction ($5,450 for single filers, $10,900 for married couple filing jointly.  It’s $8,000 for heads of household.) is fine for those people who have uncomplicated tax situations.  But, the amount of your home mortgage interest payments, state taxes, property taxes, charitable contributions, and hurricane losses could actually be many times over the standard deduction.  Meaning, if you don’t itemize, you may not be deducting as much as you are entitled to on your taxes.

Education Expenses
There are many education-related deductions and credits available, whether you are currently making tuition payments, paying off your college degree, or saving for your children’s college education.  You owe it to yourself to check out the explanation of education tax benefits available on the IRS website at http://www.irs.gov.

Charitable Deductions
Don’t forget to deduct all that you have given to charitable organizations, especially if you’ve given cash gifts or donations of clothing, toiletries, food, or appliances that you can then deduct at fair-market value.  Go through your receipts, checkbook register, and previous credit card statement to make sure you don’t forget all that you’ve given.  Remember too, only donations to qualified organizations, not individuals, will qualify.

Medical Expenses
To qualify for a medical deduction, your medical expense for the year must exceed 7.5% of your adjusted gross income.  So, if your income is $50,000 for example, and you have $5,000 in eligible expenses, you can deduct those expenses above and beyond $3,750.  Remember, in 2006 the IRS became more generous about what can qualify, including weight loss programs, smoke cessation programs, even a health club membership if prescribed by your doctor.  Also, you can deduct medical expenses for your spouse.

Miscellaneous Expenses
To figure out how much you can deduct, calculate 2% of your AGI and subtract that from the amount of eligible miscellaneous expenses. For example, if your AGI is $45,000, 2% of that is $900. Say you have $1,100 in miscellaneous expenses, you can only deduct $200 of that ($1,100 - $900 = $200).  Such expenses can be broken down into 3 groups: un-reimbursed business expenses, tax preparation fees and "other" expenses.

Did you know that the 2% rule doesn’t apply to all gambling losses, job search expenses, safe deposit fees, and subscriptions to investment publications?  The entire about can be claimed as tax deductions!

Free Tax Preparation for Seniors
AARP’s “Tax-Aide” Program Provides Free Tax Prep for Seniors
Sponsored by the Internal Revenue Service, Tax-Aide is the largest free tax counseling and preparation program in the country, helping more than 2 million elderly people with their federal, state, and local tax returns at some 7,800 sites throughout the United States during tax season.  Most clients are low-to-middle income taxpayers over 60 years old.  Tax-Aide sites are in east-to-access places like senior centers, libraries, banks, and grocery stores.  Volunteers will also visit retirement and nursing centers and homebound elderly taxpayers.

Are you a senior or do you know a senior who could use some help this tax season?  For more information call the AARP Tax-Aide Information Line at 1-888-227-7669 or go online at www.aarp.org/taxaide.  The AARP Tax-Aide site locator will ask for your zip code to find nearby help.  Here’s what’s needed at the site:

• Photo ID
• Social Security Card
• Wage and earnings statements
• Interest and dividend statements
• Copy of last year’s federal and state returns (if available)
• Bank routing/account numbers

Getting the Most Out of Your Tax Refund:

Do you save it or spend it?  Here are two suggestions to help you stretch your refund as far as it can go:

Savings: Do you have a high yield savings account, or are you interested in purchasing a Certificate of Deposit (CD)?  Do you have an IRA or similar retirement plan to contribute a little extra to?  There are many options available when it comes to savings and investment, but before you choose to simply save your funds, think about your debt and what it is costing you each month in interest.

Alleviate some debt:  Pay off some of your existing debt.  As illustrated above, if your investment interest rates do not exceed your debt interest rates, then you should be thinking about which debt to pay down, rather than which fund to invest in.

To Learn More…

The IRS website at http://www.irs.gov/index.html provides a wealth of helpful, important information on tax filing which could end up saving you a lot of money on this year’s tax return.  Be wise, and take a few minutes to explore!  The following websites are also good tax information resources:

• http://www.statetaxcentral.com/
• http://finance.yahoo.com/taxes
• http://www.taxtopics.net/

Sources: www.irs.gov.  Publications 551 and 502.