Smart Money Choice$

As you might well imagine by now, tax season is off to a roaring start around here.  But there seems to be a positive spirit all around, for a change.

Could it be because of the “free money” the new Economic Stimulus Act that President Bush signed into law on February 13th will bring most taxpayers? If you haven’t heard the particulars yet, here’s a quick summary that will likely put a smile on your face too.

The new tax law is designed to put money into the pockets of American taxpayers to help stimulate the struggling economy. The IRS has promised to begin mailing the rebate checks by late spring and continue throughout the summertime.

The rebate amount is based on your 2007 tax return. So taxpayers who are not otherwise required to file a tax return may want to file a return this year. That’s because even if you are eligible to receive a rebate, if you don’t file a tax return for 2007, you won’t get a rebate check.

Who’s Eligible for the Rebate?

Generally, taxpayers who meet the following requirements will qualify for the rebate:

• A valid Social Security number
• Not claimed as a dependent on someone else’s tax return
• Have at least $3,000 in “qualifying” income (that includes income from wages, self-employment, Veteran’s disability and/or Social Security payments)

How Much Is The Rebate?

• The minimum rebate amount is $300 ($600 for couples filing joint returns)
• The maximum rebate amount is $600 ($1,200 for couples filing joint returns)

How Much Will You Get?

Most taxpayers will receive two notices in the mail from the IRS. The first will explain the payment program. The second will confirm your eligibility, your payment amount, and when you can expect to receive the payment. Save this notice because you will need it for the preparation of your 2008 tax return!

If you are receiving a refund on your 2007 tax return and elected to get your refund via direct deposit, your rebate will also be directly deposited into the same bank account. Otherwise, you will get a check in the mail.

Parents Get an Additional Child Credit

If you receive at least $1 of the rebate, you will also receive an additional $300 for each qualifying child. To qualify, a child must be eligible under the Child Tax Credit and have a valid Social Security number.

Businesses Get A Break In 2008

For 2008, this same tax law will give the following reductions to your business tax burden:

• Section 179 expensing limit increases to $250,000
• Special bonus depreciation of 50% will be available on certain property, including software and leasehold improvements.
• Bonus depreciation will be allowed under the alternative minimum tax (AMT) as well.

As is always the case, there are a lot of little details in this new tax law, so if you want to get into more of the nitty gritty, here’s where you can get it:

• Fact Sheet – Sample Scenarios of How The Rebate Will Work (PDF document)
• IRS Rebate Info Center – All the up-to-date details from Uncle Sam himself
• News Briefling Audio – Save time and listen to the February 22nd news briefing right from your computer (MP3 file)

So be sure to file your 2007 tax return on time this year, and get your rebate money as soon as May!

We’re now in the last week of the year, and as we get ready to bid 2007 good-bye, there are a few smart choices that might be right for you when it comes to saving taxes. Here are four quick tips you can use this week (before December 31st) that may help lower your tax bill come April 2008:

1. Clean up your portfolio – We all should keep an eye on how our investments are doing throughout the year, but getting rid of the deadweight in your portfolio now can at least provide some tax benefits to ease the disappointment.
           
   Sell off your mutual funds and stocks that are not performing well to reduce your taxable income. Capital losses are first applied against capital gains, and then up to $3,000 in lossees can be applied to ordinary income. If you have more than $3,000 in capital losses, it will be carried forward to future years until it has been used up.
           
   Hold off until at least January, though, before selling any stocks on which you might realize a gain if you expect to be in one of the two lowest tax brackets (10% and 15%) in 2008. Next year taxpayers will pay no taxes (0%) on profits from the sale of assets they have owned for more than a year.
           
2. Buy what your business needs now – If there is any software or equipment you know your business will be needing soon, buy it before New Years hits, even if you have to put it on a credit card. Also, if you have any unpaid business bills, pay them off before December 31st. You can claim the expense on your 2007 tax return to help reduce your income tax bill. If you are a sole proprietor (filing a Schedule C), this strategy does double duty because it will help to reduce the big bite self-employment taxes takes out of your bank account too.
        
3. Pay State and Local Estimated Taxes – If you’ve been paying quarterly estimated taxes to your state and/or local taxing authorities, and you itemize on your individual tax return (file a Schedule A), then you should consider paying the 4th quarter payment before the end of the year, instead of waiting for the January 15th due date. State and local income taxes are deductible in the year they are actually paid. By making your last payment by the end of this year, you will get that much more to deduct for 2007.
         
4. Remember To Take Your Required Minimum Distribution (RMD) – If you are over 70 1/2 years old and have an IRA account (including SEP IRAs), be sure to take your RMD by December 31st or you may be subject to a nasty penalty.

As always, be sure to consult your tax professional before doing anything you are not absolutely sure will bring you maximum tax benefit. Everyone’s tax situation is different. In fact, contacting your tax person before year end is itself a smart choice, since s/he may be able to suggest other tax-savings strategies that are perfect for your situation.