Many Happy Returns

By Stephen M. Wheeler

It’s tax time, and you’re probably wondering how to make the process go more smoothly than last year (and if there is anything you can do to pay less or get more back). Fortunately, there are a couple of things that may make the ordeal of filing a bit more rewarding.

Pay Yourself and Pay Less

It’s 2008, so it’s too late. Not true! Until April 15, 2008, you can make a contribution to a traditional IRA that may count as a deduction on your 2007 return. Traditional IRAs do have mandatory distribution rules, and distributions are generally subject to income tax in the year withdrawn.

While it won’t count as a deduction on your 2007 taxes, a Roth IRA is a popular alternative to the traditional IRA. With a Roth, after-tax income is contributed to an account, and if you satisfy the requirements, qualified distributions are tax free.

2007 contributions to both traditional and Roth IRAs are limited to $4,000 ($5,000 if you are age 50 or older) provided you earned at least that much. Both have contribution, withdrawal and other restrictions. Review the rules with your financial or tax professional.

Gimme Some Credit!

Tax credits save you money by reducing the amount of tax you owe (often confused with tax deductions, which lower the income on which tax is figured). Take note of these sometimes overlooked credits, recognizing that all come with some restrictions and/or qualifications. Details can be found at www.irs.gov, keyword don’t overlook credits.

• Earned Income Tax Credit (EITC). The EITC provides a credit for low- and moderate-income workers and working families.
• Child Tax Credit. If you have a dependent child under age 17, you may qualify for the child tax credit, which can be as much as $1,000 per eligible child. This is in addition to the regular $3,400 exemption you can claim for each dependent.
• Credit for Child Care and Dependent Care Expenses. If you pay someone to care for your child or dependent so you can work or look for work, you may qualify for this credit.
• Education Credits. The Hope credit and the lifetime learning credit help pay for post-secondary education. You may be able to claim these credits in lieu of tuition and fee deductions. You cannot do both.
• Saver’s Credit. The saver’s credit helps low- and moderate-income workers save for retirement. The saver’s credit has income restrictions and requires contributions to an IRA or workplace retirement plan.
• Energy-Saving Tax Credits. This credit is based on what you spend on various energy-saving improvements made to your main home.

Tips for Smooth Filing

The IRS publishes a list of tax tips to make the filing process a little smoother (and less painful). It can be found at www.irs.gov, keyword tax tips 2008. Keep in mind that IRAs, tax credits, tax deductions and even tax tips affect individuals differently. Be sure to speak with a tax professional or financial planner to discuss your unique situation.

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