It is hard to believe we are approaching the tail end of 2007. In a matter of weeks, we will be in the midst of the holiday season starting with Halloween. Speaking of trick or treat, tax time is also near. Will your 2007 return provide you with a treat? Or, will the IRS get the benefit of their tricks, rules, and complexity and leave you paying more than you think you should? The prospect of filing the return is only a few months ahead and most likely like last year you did what you have always done to prepare for this time. Nothing!
Here are a few things you can do to aid in the preparation of your return, and a few steps you can still do now to reduce your taxes for 2007.
For your 2007 tax return, do not forget the following:
• There are new rules for deducting charitable contributions. Deducting cash contributions are no longer allowed, regardless of the amount, without a written receipt from the charity. All contributions must now be documented with either a cancelled check or confirmation by the charity showing the date, amount, and name of charity.
• If you have determined you have a refund for 2007, but currently do not have the cash to make an IRA or Roth contribution and would like to use part of your refund to do so, you can. Indicate on your return you are making the retirement contribution, file your return early so the refund will be received prior to April 15 and then use the refund to actually fund the contribution. It is important to know the contribution to the retirement account must be made prior to April 15 as well. You should indicate the contribution is for 2007 on your check or application. You cannot claim the IRA retirement contribution on your 2007 return, if you are not able to complete the contribution by the initial due date.
• If you are self-employed and showed a profit for 2007, many of you will be able to open a SEP retirement account and contribute a percentage of the profit. The contribution is deductible on your 2007 return and the contributions can be made until the return is filed, including extensions.
• The standard mileage rate for 2007 was increased to 48.5 cents. If you are being reimbursed a lesser amount from your employer, you can still deduct on Form 2106 the difference.
• There are two other uses of your car that are often overlooked. The miles driven for charitable use may be deducted on Schedule A at a rate of 14¢ per mile, and the miles driven for medical purposes, such as trips to the doctor and to the pharmacy, can be added to your other medical expenses at a rate of 20¢ per mile.
• Non-cash contributions are often made but rarely reported on taxpayers’ returns at their proper value. Provided the items given away are in good or better condition, then the value of your contribution should be nearer to that of a consignment store than a garage sale. To document this, you should not only list the items given away, noting the brand and the condition, but also a photograph of the group may further document your deduction. The resulting difference may improve your deduction by 100 or 200 percent. If the total is above $500, then you must use IRS form 8283.
• Educators, do not forget to deduct up to $250 of non-reimbursed educational material used in the classroom, provided you worked the minimum 900 hours in 2007 as an educator.
• If you have moved to secure new employment, provided you meet the distance and time tests, the cost to move is deductible. All costs related to moving your belongings, temporarily storing them, cost to disconnect and connect utilities are deductible and 18¢ per mile if you drove your vehicle. You can no longer deduct the cost of meals during the move. More information can be found in IRS publication 521.
Review IRS Publication 17. It is very large, but you can download it in PDF format if you have access to the Internet and a computer to review the file. This publication is broad in its discussion and should assist most tax filers by answering general questions.
Creating a proper financial plan not only includes filing and paying only your fair share of the taxes due, but also setting aside money to provide future income, as well as purchasing insurance to minimize the personal risk you take. If you need assistance in any or all of these areas then you should contact an area CFP for assistance.
HOW TO REACH THE WRITER
Would you like a response to a financial question? Send your question to Doug Horn, 115 W. Broadway, Maryville, TN 37801. Be sure to mark your envelope Money Matters.
Doug Horn, CFP, is an area financial planner with more than 24 years financial experience and founder of Quality Financial Concepts, located in downtown Maryville on Broadway.
Doug Horn, CFP, Registered Investment Advisor in Tennessee and Texas and Registered Principal, Branch Office of and Securities offered through CUE Financial, Member FINRA, SIPC.