Accounting Professor Offers Last Minute Tax Tips (2/22/2008)

Before you file your taxes, you may want to consider several last-minute tips before sending your W-2s to Uncle Sam by April 15.

John Colliander, adjunct professor in accounting and taxation at the University of New Hampshire Whittemore School of Business and Economics, suggests taxpayers consider several strategies in preparing and filing their 2007 tax returns.

IRA Contributions

The maximum contribution for 2007 to your Individual Retirement Account (either Roth or traditional) is $4,000 (increasing to $5,000 for 2008). Individuals who have reached age 50 before Dec. 31, 2007, are allowed an additional "catch up" contribution of $1,000. It's not too late to make your 2007 IRA contribution:Taxpayers have until April 15, 2008, to make their 2007 contribution. In fact, a deduction may be taken on your 2007 tax return even though the contribution has not as yet been made.

Capital Gains

The 2007 alternative capital gains tax rate for individuals in the 10 percent or 15 percent tax bracket is 5 percent. Beginning in 2008, a 0 percent rate replaces the 5 percent rate. If you qualify for this rate, you might consider selling capital assets that have appreciated while this 0 percent rate is in effect. While this rate is presently in effect for next year as well, there is no guarantee that there will not be a tax change, so you might want to take advantage of this rate in 2008.

Personal Energy Credits

Individuals are entitled to a variety of personal energy credits for 2007. Among these are credits for the installation of certain energy saving devices installed in your principal residence prior to Jan. 1, 2008 (e.g. qualified exterior doors, windows, furnaces, and the like). You also may be entitled to an alternative motor vehicle credit on your 2007 tax return if you purchased an eligible vehicle last year (e.g. a qualified hybrid vehicle). Among other requirements you must meet, you must be the original user of the vehicle. You would claim this credit on form 8910.

Foreign Tax Credit

If you are the recipient of foreign source income (e.g. dividends from a Canadian corporation) from which foreign income taxes were withheld at the source, you may be entitled to a credit against your U.S. income for these taxes. There are limits to the amount of credit to which a taxpayer is entitled, but generally most, if not all, foreign taxes paid is eligible for the credit.

Charitable Contributions

Unfortunately for tax years beginning after Aug. 17, 2006 (generally meaning 2007), no deduction for any cash contribution will be allowed without some bank record or receipt. For example, weekly cash contributions to your local church would not be deductible without some form of substantiation.

Excess FICA

If an individual holds two jobs, each employer is required to withhold social security taxes. Since individuals are liable for the FICA portion of such taxes only up to a total wage base of $97,500 (for 2007), in many instances a person's actual FICA payments may exceed the maximum payments due. Don't forget that such excess FICA is a credit against taxes owed.

Alternative Minimum Tax

In recent years, inflation has overtaken the AMT exemption amount. Congress passed the Tax Increase Prevention Act of 2007 late in December, which, among other things, raises the AMT exemption amount. If you are subject to the AMT, be sure that the AMT form you are using (form 6251) is the current form, reflecting this new exemption amount.

Extensions

As in prior years, individuals are entitled to an automatic six-month extension to file their individual tax return (1040). Filing form 4868 by April 15, 2008, will extend the filing deadline to Oct. 15, 2008. It will not, however, extend the due date for the payment of taxes. The estimated amount of your taxes is due with the filing of form 4868. Failure pay all taxes by April 15, 2008, will result in the assessment of penalties and interest.

Note: This story has been adapted from a news release issued by the University of New Hampshire

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