It’s That Time of Year Again

I recently attended a tax seminar presented by my good friend, Kim who is a CPA. I thought you may be interested in some of the notes I took on ways to help reduce your tax liability and make the most of your money.

Please note that I am not a financial advisor and although I believe I take good notes, ask your accountant if you have any interest in or questions regarding these items or other tax matters.

2008 Tax Matters

• Those under 50 years of age have until April 15th to contribute up to $5,000 to IRA accounts; those over 50 years old can contribute $6,000.
• Roth IRAs are NOT tax deductible (they are funded with after-tax money and withdrawals are not taxed)
• There is a First Time Homebuyer “credit” for 2008 if you purchased a home after April 9,2008; there are pros and cons to this program. It is actually more like an interest free loan amortized over 15 years ($500/yr). So if you are not a good saver, or plan to move before 15 years this may not be a good idea for you. If you move before the “loan/credit” is paid back you will owe the difference. Also, if you have any overdue government debt (child support, student loans, etc.) that credit will go straight to that debt and you will be liable for the repayment should you move.
• Students attending Iowa schools in the flood disaster zone last year may be eligible for double credit towards the Hope or Lifetime Learning program.
• If you housed a displaced flood victim or had mileage to assist in flood efforts you may be eligible for more deductions
• If you added energy efficient items to your home – geothermal energy, solar panels, energy efficient windows, doors, air conditioner, furnace, or insulation you may be eligible for up to $500 in credit. (Be sure to ask your accountant about the limits before you buy new items!)
• Mileage rates have changed:
  • $0.505 until June 30th
  • $0.585 July 1 to December 31st
  • $0.550 January 1
• If you incurred business related expenses not reimbursed by your employer you may be eligible for deductions (uniforms, union dues, tools, etc.) Ask about limitations

Ways to Reduce Your Tax Liability in 2009

• Contribute to your 401(k) at work if you have one – at the VERY LEAST contribute whatever your company will match. It’s free money people. There is no excuse. Plus, it will reduce your tax liability now when you are likely in a higher bracket than you will be upon retirement. It will also reduce your federal taxes so you may not see that much difference in your take home pay.
• If you have a Flexible Spending Account use it! But be wise in budgeting…it’s a use it or lose it type of account. If you find that you have a lot of money left in it at the end of the year check the website as you can buy all kinds of reimbursable items (medications, supplements, etc.) to use the money.
• Dependent Care Benefit – the maximum is $5,000 per couple and it is not taxed. Check with your accountant as you may be better off taking the dependent care credit.

I learned a few things and I hope you did too!