Are you one of many taxpayers who overpay their taxes? Make an early resolution not to be one of them in 2008. Practice good record keeping as a part of your year-round tax planning strategy. Carefully organize receipts, and other documentation that may represent deductions and credits for filing your tax return. Familiarize yourself with any tax changes that may affect you during the tax year, and any life changes that influence your tax situation, like getting married or buying a home. Calculate a tax-savings strategy, plan all year, and then add up the savings at tax time.
Tax Dates to Remember
Whenever a tax deadline falls on a Saturday, Sunday or legal holiday, the deadline for tax purposes will be the next business day not falling on a Saturday, Sunday, or legal holiday. The following dates are due dates for 2008:
January, February, March (First Quarter)
January 10th – Tip reporting deadline is the 10th of each month. If you received tip income over $20 in December 2007, you must report the amount to your employer. You can use Form 4070, Employee's Report of Tips to Employers.
January 15th – Estimated taxes are due four times a year. This is the final installment date for 2007 estimated tax. However, you do not have to make this payment if you file your 2007 return (Form 1040) and pay any tax due by January 31, 2008.
January 31st – By January 31st, employers must have mailed your Form W-2, Wage and Tax Statement, to you or Form 1099 if you are an independent contractor. Banks must release statements of interest earnings, Form 1099-INT, Interest Income. Mortgage companies must release Form 1098, Mortgage Interest Statement, to their home loan customers. If you employ household workers such as a nanny, you must send them a Form W-2.
February 11th – Tip reporting deadline is the 10th of each month (except if due date is Saturday, Sunday or holiday.) If you have tip income over $20 in January 2008, you must report the amount to your employer. You can use Form 4070, Employee's Report of Tips to Employers.
February 15th – This is the deadline for those who claimed an exemption from income tax withholding for the past year to file a new Form W-4, Employee's Withholding Allowance Certificate.
February 28th – If you have household employees working for you, February 28th is the date you must send a copy of their Form W-2's and Form W-3's, Transmittal of Wage and Tax Statement, to the Social Security Administration.
March 10th – Tip reporting deadline is the 10th of each month. If you received tip income over $20 in February 2008, you must report the amount to your employer. You can use Form 4070, Employee's Report of Tips to Employers.
March 17th – This is the due date for Corporation and S corporation returns. File Forms 1120, 1120-A, or 1120-S, and pay any tax due. If you want an automatic 6-month extension of time to file the return, file Form 7004, Application for Automatic Extension of Time to File Corporation Income Tax Return, and deposit what you estimate you owe.
April, May, June (Second quarter)
April 1st – Retirees who reach 70 1/2 years of age on or after this date must start to receive distributions from their lRAs.
April 10th – Tip reporting deadline is the 10th of each month. If you received tip income over $20 in March 2008, you must report the amount to your employer. You can use Form 4070, Employee's Report of Tips to Employers.
April 15th – Estimated Taxes - Estimated taxes are due to the IRS four times a year. This is the first installment date for 2008 taxes.
April 15th – IRA Deadlines - You have until April 15th to make contributions to an Individual Retirement Arrangement (IRA). Taxpayers have a choice of opening a traditional or Roth IRA, or contributing to an existing account.
April 15th – Tax Deadline for Individual Filing - The IRS expects taxpayers to file their returns by April 15th. Need more time to file your taxes? Be sure to file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, and get this to the IRS before April 15th. An extension is a postponement to file your tax information, but not an extension of time to pay what you owe. You will have to pay penalties and interest for any taxes owed if they are not paid by April 15th. You can request to make monthly payments to the IRS by filing Form 9465, Installment Agreement Request, with your tax return.
April 15th – Tax Deadline for filing Partnership returns. File Form 8736, Application for Automatic Extension of Time to File U.S. Return for a Partnership, REMIC, or for Certain Trusts, to request an automatic 3-month extension. Then file Form 1065 by July 15th.
May 12th – Tip reporting deadline is the 10th of each month (except if due date is Saturday, Sunday or holiday.) If you received tip income over $20 in April 2008, you must report the amount to your employer. You can use Form 4070, Employee's Report of Tips to Employers.
June 10th – Tip reporting deadline is the 10th of each month. If you received tip income over $20 in May 2008, you must report the amount to your employer. You can use Form 4070, Employee's Report of Tips to Employers.
June 16th – The second installment of estimated taxes is due to the IRS on June 16th.
June 16th – Tax Deadline for Individual Filing – If you are a U.S. citizen or resident alien living and working (or on military duty) outside the United States and Puerto Rico, file Form 1040 and pay any tax due. Be sure to file Form 4868 to receive an additional 2 months time to file by August 15th.
July, August, September (third quarter)
July 10th – Tip reporting deadline is the 10th of each month. If you received tip income over $20 in June 2008, you must report the amount to your employer. You can use Form 4070, Employee's Report of Tips to Employers.
July 15th – Tax filing deadline for partnership returns that applied for an automatic 3-month extension. Partnerships may apply to request an additional extension of 3 month on Form 8800, Application for Additional Extension of Time to file a U.S .Return for a Partnership, REMIC, or for Certain Trusts.
August 11th – Tip reporting deadline is the 10th of each month. If you received tip income over $20 in July 2008, you must report the amount to your employer. You can use Form 4070, Employee's Report of Tips to Employers.
August 15th – This is the tax-filing deadline for individual filers who filed an extension by April 15th. Taxpayers may request an additional extension request by filing Form 2688, Application for Additional Extension of Time to File US Individual Income Tax Return.
September 10th – Tip reporting deadline is the 10th of each month. If you received tip income over $20 in August 2008, you must report the amount to your employer. You can use Form 4070, Employee's Report of Tips to Employers.
September 15th – The third installment of estimated taxes is due to the IRS.
October, November, December (fourth quarter)
October 10th – Tip reporting deadline is the 10th of each month. If you received tip income over $20 in September 2008, you must report the amount to your employer. You can use Form 4070, Employee's Report of Tips to Employers.
October 15th – This is the tax-filing deadline for taxpayers who received the IRS-approved two-month filing extension. This is also the last day of electronic filing with the IRS.
November 10th – Tip reporting deadline is the 10th of each month. If you received tip income over $20 in October 2008, you must report the amount to your employer. You can use Form 4070, Employee's Report of Tips to Employers.
December 10th – Tip reporting deadline is the 10th of each month. If you received tip income over $20 in November 2008, you must report the amount to your employer. You can use Form 4070, Employee's Report of Tips to Employers.
Tax Strategies Throughout the Year
Adjust Form W-4 With Your Employer
Having too much or too little withholding taken out of your paycheck? It's a great time to adjust your withholding by completing another Form W-4, Employee's Withholding Allowance Certificate. Many workers pay more withholding than they need to with each paycheck. You can adjust your Form W-4 anytime throughout the year.
Life's Events
If you purchase a home in the early part of the year, there will be more months of mortgage interest that should be deductible. Loan origination points paid at closing may also be deductible in the year of home purchase. You will be able to deduct real estate and personal property taxes on Schedule A. If you are a qualified first-time home buyer, you may withdraw funds from your IRA for your home purchase without having to pay the additional 10% tax, but remember that the withdrawn amount generally will be taxable.
Timing is important when it comes to some of life's changes and tax consequences. A child born anytime during the year can be claimed as a dependent by the parents for the entire tax year if the qualifications are met. If a couple marries before the end of the year, they are considered married for the entire year by the IRS.
Deduct Educational Expenses
Qualifying higher education expenses such as tuition and fees you paid for yourself, a spouse, or a dependent may be deductible. Up to $4,000 of these expenses can be deductible as an adjustment to income if your adjusted gross income is below $65,000 ($130,000 if married filing jointly). The deduction is limited to $2,000 if your AGI exceeds that limit but is under $80,000 ($160,000 if MFJ). The taxpayer cannot claim both this deduction and the Hope or lifetime learning credit for the same student in the same year.
There are two nonrefundable tax credits for payments made for qualified tuition and related expenses for post-secondary education. The Hope credit remains at 100% of the first $1,200 of expenses and 50% of the next $1,200 expenses, for a maximum credit of $1,800. The lifetime learning credit gives a credit of 20% of qualified educational expenses not exceeding $10,000, for a maximum credit of $2,000. There are phase-out modified adjusted gross income levels for both credits. The limits are between $48,000 and $58,000 for single taxpayers, and between $96,000 and $116,000 for married filing jointly.
Which educational expenses qualify for the education credits? Liberty Tax Service reminds you that the tuition you paid for yourself, your spouse or a dependent to attend an eligible educational institution in 2008 should qualify. The costs of books, supplies and equipment do not usually qualify, but may qualify if these purchases are required by and paid to the school in order to attend. The amount of credit for the Hope and/or Lifetime learning credits will be reduced for single taxpayers whose modified adjusted gross income is between $47,000 to $57,000 (between $94,000 and $114,000 for married filing jointly).
Contribute to Your IRAs and Retirement Plans
For taxpayers covered by a pension plan at work in 2008, the modified adjusted gross income limit for deducting traditional IRA contributions has increased. A couple filing married filing jointly whose income is between $85,000 and $105,000 can take a partial deduction this year. Single taxpayers (including head of household filers) making between $53,000 and $63,000 can take a partial deduction. The contribution limit for 2008 is $5,000 ($6,000 if age 50 or older).
If you contributed to an IRA or an employer-sponsored retirement plan in 2008, you may be eligible for a credit. This nonrefundable credit is based on the return income and can be up to $1,000 per taxpayer. It can be taken in addition to the deduction of the traditional IRA contribution.
Employees of small businesses may have the option of SIMPLE IRA plans where the employers make contributions toward their employees' retirement. Employees can choose to contribute to the SIMPLE IRA by having their contributions deducted from their salaries. Employers may match their employees' contributions. An employer can contribute up to $10,500 in 2008, and a "catch-up amount" of $2,500 for employees over 50.
It may be possible for you to adjust the contribution of your 401K through your employer. Taxpayers find that often they can shelter more of their income in a 401K than in an IRA. Some employers match their employees' contributions.
Medical Expenses
Medical expenses can be deducted if they exceed 7.5% of gross income. That's usually a substantial sum, so plan ahead for expensive dental work or other medical treatment if possible to claim large medical expenditures in one tax year. If you're close to the deductible amount, schedule an additional dentist visit, purchase of glasses or contact lenses, or routine physical exam before the end of the year. Don't forget that mileage to and from a doctor's or dentist's office is also deductible. The mileage to a pharmacy to pick up a prescription is a tax-deductible medical expense too.
Taxpayers covered by their employer's health care flexible spending accounts (FSAs) may now receive a tax break when purchasing over-the-counter medications. The purchase of non-prescription medications can be paid for with (FSA) pre-tax dollars and will not be taxed if the taxpayer submits receipts and documentation to their employers.
There's a new method of planning ahead and save in advance for medical emergencies and expenses. This account must be used in conjunction with a high deductible health plan (HDHP). Taxpayers may now choose to open Health Savings Accounts (HSAs) through banks and other financial institutions. Those who choose to open HSAs can deduct the amount their contributions whether they itemize or not. If you have an Archer MSA, you can generally roll it over into an HSA tax free.
Children and Family Tax Issues
Adoption Credit: If you've adopted a child this year, you may qualify for the Adoption Credit. The adoption credit is a permanent credit for persons adopting all children. The current maximum amount of the credit is up to $11,650. If a special needs child is adopted, the full amount of the credit can be deducted even if the expenses are less.
Children's Investment Income ("Kiddie Tax"): The investment income over $1,800 of certain children who are under the age of 19 (from 18) and dependents who are full-time students under age 24 at the end of the year will be taxed at the parents' rate on Form 8615. The parents can include on their own return the child's gross income (interest & dividends only) in excess of $1,800 in 2008 on Form 8814.
Exemption Amount: $3,500 per dependent.
Earned Income Credit for Low Income Wage Earners:
- EIC limits for two or more children: $38,646
- One child: $33,995
The limits increase by $3,000 if the filing status is married filing jointly. The earned income credit is a refundable credit and is treated as a payment.
Child Care Expenses: If you pay for a caregiver or day care center to watch your children under age 13 while you work or look for work, you may be able to deduct up to 35% of those costs by claiming the Child and Dependant Care Credit on Form 2441. The child must live with you for over half the year, but you no longer have to pay more than half of the cost of maintaining a residence. This is a nonrefundable credit, and can only reduce the taxpayer's tax.
Child Tax Credit: If your qualifying children under age 17 live with you the entire year, you may also qualify to claim the Child Tax Credit of up to $1,000 per qualifying child. This credit is nonrefundable, and can only reduce the taxpayer's tax.
Additional Child Tax Credit: The earned income amount used to figure the additional child tax credit is 15% of the income in excess of $12,050. This is a refundable credit and is treated as a payment. The credit is claimed on Form 8812.
Charitable Contributions
The IRS has imposed stricter standards for the condition of some items donated to charities. No deduction is allowed for clothing and household items unless the donated property is in "good used condition or better." The rule does not apply to any contribution of a single item for which a deduction of more than $500 is claimed if the taxpayer includes a qualified appraisal with the return. Monetary charitable contribution deductions will be disallowed unless the donor maintains a record of the contribution.
Keep Track of Deductible Mileage
The standard business mileage rate is 50.5 cents per business mile driven in 2008. The deductible amount for mileage driven during a move and/or for medical purposes is 19 cents per mile in 2008. Charitable mileage is deductible at 14 cents per mile in 2008. Be sure that you document this mileage by keeping a log or other written record.
Job Hunting and Other Miscellaneous Expenses
Are you job hunting in your current profession? Speed up your job search in the final months of the year, and you will have more miscellaneous expenses subject to 2% of the adjusted gross income. Expenses for resume printing, mailing your resume, long-distance phone calls to prospective employers, and the mileage or cost to get to and from job interviews is tax deductible. Any purchases necessary to do your current job that won't be reimbursed by your employer can be made now to deduct while filing your tax return.
End-of-year
Make Charitable Contributions and Donations Before the End of the Year: Generally, for individuals, contributions to tax-exempt charitable organizations are limited to 50 percent of the taxpayer's adjusted gross income for the tax year. Those unused items cluttering closets can be donated to a qualified charity or non-profit organization and deducted as charitable contributions. However, these items must be in good, used condition or better. Document your donations by saving receipts, cancelled checks and any letters or correspondence from the charity.
Check the amount of your medical deductions: Taxpayers should check to see if they have enough medical deductions to itemize (over 7.5% of AGI) this year. It's not too late to schedule additional dentist or eye doctor appointments before the end of the year. It may, instead, make sense to "bunch" medical deductions into one year, and plan ahead for next year. There are numerous medical costs that are deductible including lasik eye surgery, doctor-prescribed weight loss programs, and capital expenses for ramps, railings, etc. installed in a home to accommodate disabilities. IRS allows the cost of smoking cessation programs as a medical expense, but not the costs of patches and gums. Don't overlook medical mileage to and from the doctors, hospitals, and the pharmacy.
If you're self-employed, buy supplies now: Self-employed taxpayers who use the cash method of accounting can pay bills on or before December 31, 2008 and claim the expense on a 2008 return. Stock up on necessary supplies and equipment. Remember to take advantage of the section 179 deduction of up to $128,000 for computers and other big ticket items put into service before the end of this year.
Planning a move before the end of the year? Be sure and notify the IRS with Form 8822, Change of Address. Whether you're self-employed or an employee, you may be able to deduct moving expenses for a work-related move at least 50 miles away from your current address. Retirees may qualify to claim moving expenses even though the move may not pertain to work.
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