JMM CPA - Tax Services

A Certified Public Accounting and Financial Services Firm

Tax Tips

Are you taking full advantage of the increased retirement plan contributions for 2008?
Did you know taxpayers age 50 and up can make "catch-up" contributions to 401(k) plans?
In 2008, 401(k) and 403(b) limits are $15,500 with $20,500 for those 50 and older.
IRA contributions are limited to $5,000 and $6,000 for people over 50.
SIMPLE plan contribution limits are $10,500 in 2008 with $13,000 for those 50 and older.

Exemption and credit amounts for 2008
The amount is $3,500 per exemption unless you are claimed as a dependent by someone else. The child tax credit is $1,000 for each qualifying child but begins to phase out for higher income individuals. There are also several education credits available. . .ask us for more details.

Reductions in dividend tax rate
Effective in tax year 2003 and beyond, all dividend income is taxed at the long term capital gains rates. For those in the upper ordinary brackets, that rate is 15%; for those in the lower 10% and 15% brackets, the rate is 5%.

In order to quality for these lower rates, holding period rules apply. The rule is (now get this!): the shareholder must hold the stock for more than 60 days during the 121 day period beginning on the date that is 60 days before the ex-dividend date (the date on which the corporation finalizes the list of shareholders who will receive the dividend). Say what? Example: Steve buys stock on May 20, the ex-dividend date is June 28, he sells the stock on July 9. The 121 day period is April 29 through August 28 (60 days before and after the ex-dividend date). Steve will not qualify for the lower tax rates because he held the stock for less than 60 days during this period.

The lower dividend rates offer a great opportunity to recognize U.S. Savings Bond interest, bringing the basis up to date while paying the lowest tax rates in years.

AMT Developments

Alternative Minimum Tax (AMT) is a computation applied to returns of taxpayers with higher incomes. The computation essentially takes away deductions and recalculates taxable income and adds any subsequent AMT tax to your tax obligation.

Due to changes in tax law, AMT is a tax that more individuals will find themselves having to pay in the future. One service Jelinek Metz McDonald offers to their clients is year round tax planning. Consult our experts to discuss strategies to minimize this AMT exposure.

Child and Dependent Care Credit

$3,000 for one and $6,000 for two or more qualifying dependents.

Higher Education Tax Credits

The Hope credit increased to a maximum credit of $1,650; Lifetime Learning credit remains at a maximum of $2,000. For many, the Lifetime Learning credit is the way to go.

Late Filing and Late Payment Penalties

The penalty for late filing is higher than the penalty for late payment, so by all means file your return before April 15 or request an extension. Any tax is still due on the 15th but the penalties for late payment are not as severe as late filing. Your taxes can be paid by credit card using a third party provider. Such providers charge a fee for these services.

This information is not intended to be all inclusive and should not be a substitute for the judgment of a knowledgeable tax advisor. Please contact one of our CPAs before acting on this general information.