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Filing basics
Your best strategy for minimizing tax liability and
bolstering your financial position is to stay current on
tax law. However, in a time of sweeping change, new
regulations and unprecedented economic woes, doing so
can be a challenge.
In 2008, we saw tax law changes that span the full
range of categories, from tax benefits for middle-income
and energy conscious taxpayers to tax relief for
mortgage-strapped individuals and tax credits for
parents. Yet, what remains constant is the need for
in-depth knowledge when preparing your taxes.
Filing status
Taxpayers can file as single, married filing jointly,
married filing separately, head of household or
qualifying widow(er). If you are married and filing
jointly, you can take advantage of tax credits and
benefits not available to couples filing separately.
Unmarried taxpayers may file as single or, if they
qualify, as head
of household.
Exemptions
You may claim a personal exemption for yourself, your
spouse and each of your dependents. A dependent child
includes not only children born to your family, but also
stepchildren, foster children and adopted children. Each
exemption reduces your taxable income by $3,500 in 2008.
However, you begin to lose part of the
exemption benefit if your adjusted gross income (AGI) is
above the following:
2008 exemption phase-out limits
-
Single — $159,950 up to $282,450
- Married filing jointly/Qualifying widow(er) —
$239,950 up to $362,450
- Married filing separately — $119,975 up to
$181,225
- Head of household — $199,950 up to $322,450
For 2008, even with AGIs in excess of the phase-out
maximum, you still may take a $2,333 personal exemption.
The personal exemption reduction is being phased out and
will be fully repealed by 2010.
Deductions
Even if you don’t itemize, the following deductions
may be available to you:
- traditional IRA, SEP and qualified plan
contributions;
- contributions to Health Savings Accounts'
- one-half of self-employment tax (if self
employed);
- alimony;
- job-related moving expenses;
- educator deduction (for teachers);
- and self-employed health insurance premiums.
In addition to above-the-line deductions, you can
claim the standard deduction or choose to itemize your
deductions. These include healthcare costs, taxes,
interest, charitable contributions and other
miscellaneous items such as tax return preparation fees
or investment advisory fees.
The basic standard deduction for 2008 is:
-
$5,450 if single or married filing separately
-
$10,900 for married filing jointly or qualifying widow(er)
-
$8,000 for head of household
Taxpayers age 65 and older and/or blind receive an
additional standard deduction of $1,050 for married
filing jointly or separately, and $1,350 for single or
head of household.
The standard deduction can be increased up to $1,000 for
a joint return or $500 for a single person, if you paid
real estate taxes but choose not to itemize your
deductions. In general, you should itemize if your total
allowable itemized deductions are more than the standard
deduction, although there are exceptions.
Keep in mind that the value of some of your itemized
deductions will be reduced if your AGI is above $159,950
($79,975 if married, filing separately). This reduction
is being phased out until it is eliminated in 2010, and
the reduction for 2008 will be lower than it was last
year.
» Next:
Homeowner tax breaks
This article was provided by the American
Institute of Certified Public Accountants (AICPA).
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