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Tax Tips Tax Time Again!     I agree – too soon!  It’s time to begin collecting the information for your 2007 return.     Getting an early start helps in two ways – the work is simpler and you save money.       Here’s some help on changes for 2007 and 2008. 2007 Rule Changes Keep These In Mind While You Gather Records    Some of the rules you knew for 2006 are different for 2007.     Congress Is Not Done!  They talk of last minute tax law. Congress is pushing for      relief  for homeowners who faced a foreclosure in 2007- they’d like to ensure that any     loans forgiven in the process do not lead to taxable income.  The Alternative     Minimum Tax is to snag more than 22 million taxpayers. Congress is not     likely to re-write the entire system,  but will likely provide some last-minute     relief. New For 2007     Receipts For All Charity.  You now need a receipt, cancelled check, or bank     statement for any charitable contribution.  This is a matter of law.  IRS auditors     will give no leeway.     Kiddie Tax – Age 18!  Will your youngster have $1,700 or more of investment     income (that’s interest, dividends, or capital gains) for 2007?  If so, and if not     age 18 or older by year-end, they can be taxed at your higher tax brackets.     Do not allow these youngsters to file a tax return until your own return is ready to     file.  We need to compare tax brackets.     Age 24 in 2008!  Next year the rule will hit children still in school through     age 23.  Strategy - if you planned  to have the youngster pay for college by     selling appreciated stock in 2008,  try to sell it in 2007!  For 2007, your age     18 or older child has very low capital gain rates.  In 2008, the child will be      taxed at your rates – almost certainly higher. Expiring This Year     Unless Congress extends them, these provisions lapse after 2007.     Home Energy Credits.  Last chance for these valuable credits.  Up to     $500 tax savings is given for installing new insulation windows, doors,     and skylights.  They must meet certain efficiency standards. 10% of the     cost of the items acts like withholding and is available for refund.  There     are credits for certain furnaces, heat pumps and air conditioners.  Manufacturers     list the information on new products.     More liberal credits for solar water heating or energy generation are     available through 2008.      Sales Tax Deduction.  2007 is the last time you can deduct general      sales tax.  Two key points – you must itemize your deductions, and you may      deduct the larger of sales taxes or state income tax.       Tip:  You can add sales tax paid on a vehicle, boat or airplane.  If a       new car is in your plans, the extra sales tax deduction may be helpful.       if you wait until 2008, the sales tax is not deductible.       Teachers -  Classroom Supplies.       2007 is the last year for this break.  The first $250 spent is deductible even       if you cannot itemize.       College Tuitions.  Tuition and fees for college classes can earn a tax       break.  Special credits are available, but phase out for higher incomes. A       higher deduction up to $4,000 of costs is available to even higher incomes,       but is set to expire after 2007.        Hybrid Credits Running Out of Gas.  Buy a new hybrid auto and get a        tax credit up to $3,400.  The credits will not last forever.  Credits for each        manufacturer drop when sales reach 60,000 hybrids.  So far, only Toyota        has passed the mark. (Toyota also makes Lexus vehicles.)  Credits for Toyota        hybrids got full value through September 30, 2006.  From October 2006 through        March 2007, credits on Toyota hybrids were 50% of  the maximum. For April        through September of this year they were cut to 25% of the maximum.  For        purchases on or after October 1, 2007, Toyota vehicles no longer qualify.  No        other manufacturer has yet been limited by its sales.           Note:   If your tax is too low to make use of the credit, it will be lost.  You        might also lose the credit if you pay Alternative Minimum Tax.  Don’t wail until the        last minute.  Review your records in several short sessions instead of one marathon.       You’ll save more money too! 1.        Time & Place     This takes about 10 minutes weekly plus half an hour to finish up.            Pick a place to keep your records.  Gather last year’s tax return, some     envelopes, your check register, a scratch pad, and a calendar, any receipts     and the credit card  bills. 2.        Looking Back Think back on 2007. Last year’s return shows the things you need to collect. find these first.            Calendar and Register.  A calendar and your check register will help.  Look for            deductions or events that affect your taxes.  Keep notes on any items that jog your            memory. 3.  Watch The Mail                   Watch for those “Important Tax Information Enclosed” envelopes.                       W-2’s.  Read each one before putting it away.   If it looks wrong contact your employer.                        1099’s. You get 1099-INT or 1099- DIV for any account paying             interest or dividends.  Did you find all of them?  Keep notes.                 Other 1099’s.  Real estate sales are on Form 1099-S.  Stock sales on             1099-B.  Pensions or IRAs are on 1099-R. There are several others.                         Form 1098.  The mortgage interest you paid is on Form 1098.  If             you have a private loan, get your payment book.  If your lender was the             seller, you need the name, address and tax I.D. number. Form 1098-T             reports tuition paid – these can lead to credits and/or deductions.  Student            loan interest is on Form 1098-E.  If you donated a vehicle to charity you’ll see            Form 1098-C.                         Other Income.  You may see forms for unemployment benefits,           state tax refunds, prizes, awards, or gambling winnings.                 Partnerships, etc.  Forms K-1 from partnerships, trusts, estates, and           corporations arrive later. We can do the rest of your return early.  Mail           these forms to me when they arrive.                  After January, Most forms are sent out by January 31.  In February            figure out what’s missing.  Missing a W-2?  Contact the employer.  If you            can’t locate the employer, find your pay stubs.     Late Information!  If some information arrives late, mail it to me.  If receipts for     for deductions are missing, make a list of your best recollection, sign and     date the list, and keep it with your records.  This can help if you are audited. Weekly Review     The most important step!  It only takes 5-10 minutes.  How’s your pile looking?     Check against your list of missing items.  Take a quick look at a calendar.  It may help      you recall a deduction you forgot.      Those few minutes you spend over several weeks will be more productive than one      long session.  It’s surprising what details you will remember if you give time a chance         to help you.      Final Review.   Put all your information in order.  Check you list to be sure it’s all         there.  If there are last-minute questions, write them down.       Double Win!  There are a couple of bonuses you collect for being well-prepared: (1)        Your effort pays off in the form of tax savings. (2)        Good organization makes my fee as low as possible.  I hope we have extra time for planning.  I’d like to see you save even more next year! More 2007 Changes         AMT Credits.  If you paid a large Alternative Minimum TAX (AMT) in 2003 or         earlier, you might be in store for  big refunds.  This is a complex area, and I will           not attempt a full explanation.  Those who paid large AMT may have qualified for         credits to reclaim the tax in the future.  New law makes it easier to collect the         credits.  If I prepared the returns I’ll have the necessary records.  If you are a newer         client who paid a large AMT prior to 2004 I’ll need to see your returns from 2004,         2005 and 2006.  These returns are necessary to tell whether you qualify for this         special credit.         Miscellaneous Changes.   These won’t affect most people, but are important to a         few of you: ·         Mortgage insurance.  Buyers of new homes in 2007 can deduct the premium for mortgage insurance as if they were interest. Applies only if total income is  below $110,000. ·        Public Safety Officers have more liberal rules for early retirement without penalty, and for paying health insurance premiums. ·        Roth IRA – You can contribute to a Roth if income is below $156,000 Page 5                       for couples, $99,000 for single filers.  Above these levels your                       maximum allowed contribution is phased out. ·         Health Savings Accounts have higher contribution limits - $2,850 for self-only plans, $5,650 for family plans. ·         Non-Cash Contributions .  We must use a “good or better condition” rule.  IRS offers no helpful guidance, but when the audits begin you can expect lots of questions.  I recommend you write complete descriptions, and keep a couple of snapshots.        Late Changes?  Last year we had a tax law passed on December 16.  Who knows-        it could happen again.  Watch your local paper and news broadcasts.  What is at        stake here is your hard-earned money.  I’d like to see you keep every dollar you        are legally entitled to keep. Do You Need To Send 1099s?        You may need to send Form 1099 to someone.  There are two cases: ·        Business/Rental.  You must report payments to others for services. ·        “Nominee” amounts.  If you are named as receiving income, but part of the income belongs to another, you are a nominee.        You must issue Form 1099 to the other party by January 31.  Copies are due         at IRS by February 28.  There are penalties for not sending them!         Business/Rental.  If you paid $600 or more to anyone during 2007 you may need           to issue a form.  Applies to “business” expenses only – payment for personal         expenses need not be reported.  Nor do you need to report payments to a         corporation.                  Was any part of the payment for services?  If so, you must report the         total amount  on Form 1099.  Rents you pay to a manager (but not to the         landlord) are excepted .  Same if you pay for merchandise alone.  Check your         records for repairs, painters, consultants, builders and the like.                      Get name, address and Tax I.D. Number. Call or use Form W-9.  If         Someone gives his/her name, get a Social Security Number (looks like         555-55-5555).   If a business name is used, get an Employer I.D. Number         (looks like 55-5555555).           Rental Managers.  A property manager who runs your rental sends Form 1099         to you reporting the rents.  Ask if the 1099’s for service people were sent.  The         law here is not clear, so play it safe.  Ask if they issued a 1099 to themselves for         what you paid them.  If not, you must do it!         Nominees.  Limits are lower.  If you pay $10 or more to another, you may need to          send the form .  You file the same type of 1099 as you received, but you are filing       as a “middle man.”       Getting the Forms.  I can help, or you can get forms from IRS and do them       yourself. If you need my help, please call early!  My tax season is hectic, and the       January 31 deadline comes up quickly.  If you need forms from IRS you can       reach them at 1-800-829-3676, or download forms at www.irs.gov.   You’ll       need Form 1099 and Form 1096. Tips For You      Social Security Update.  Another increase in 2008.  The earnings base jumps to      $102,000,  Employees can pay a whopping $7,803 in social security taxes.        Employers will match an identical amount!  Self-employed folks could face both      halves.           Retirees can get a 2.3% increases in benefits.  A big chunk of the increase will     go for Medicare premiums.  As this was printed we had not heard the official     figure, but the premium is expected to go from the current $93.50  to $109.40.     Those with 2006 income over $80,000 ($160,000 for couples) will pay even     more.  They pay a surcharge.  The surcharge rises from $30 to $160 as income     rises to $200,000 ($400 ,000 for couples).           Early Retirees who continue to work are limited on how much they can     earn.  Although you can collect Social Security as early as age 62, “your normal     retirement” comes later.  For 2007 early retires could earn no more than       $12,960 before beginning to re-pay some Social Security. For 2008, the figure     goes up to $13,560.     Foreclosures & Debt Relief.  We saw a rash of home foreclosures in 2007.   Tax     issues can make a bad year even worse.  Suppose you default on a $300,000 loan,     and the bank sells the home at auction for $280,000.  You just lost your home, and     your credit is ruined. IRS says you also have $20,000 of income from cancellation     of the debt the  bank couldn’t collect.  Sounds cruel, but it’s true. There are ways to     sidestep the income, but they are complex.  Let’s hope Congress agrees on more     gentle rules.     Last-Minute Tax Savers.  These involve moving deductions from 2008 to 2007.            Contributions.  If there are contributions already scheduled consider if you     can afford to make  them this year.  Get the savings now.  If you’re thinking of     cleaning out the garage, do it now.  Call your favorite charity, make a good list     (possibly even a couple of snapshots!), and get your deduction in 2007.     Business/Work Supplies.  If  you buy office supplies, think about stocking up in December.  Load up on paper, toner or printer cartridges, envelopes, maybe even some extra postage stamps.  You can also buy business fixtures or equipment, but must also be able to show the equipment was actually used in 2007.           Landlords/Businesses.  Are there maintenance items you’ve been putting off?  You get the deduction in 2007 if you do the work in 2007.  Consider painting, carpet cleaning, replacing screens or furnace filters.      Timing of Income/Expense.  An expense item is counted when you pay. Sign the check. Sign the credit card slip.  Postmark the mail.  When the funds leave your control, payment has been made.       With income, you cannot simply wait to cash a check – IRS says you have “constructively received” the money – it’s yours right now.  (You are free to delay billings, though).