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Retirement Planning: Six Tax Tips for 2008 December 7, 2008

Posted by retirementwithaplan in retirement.
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Retirement Planning: 2008 Tax Tips

These tax tips are listed in no particular order of importance but each will have a profound effect on how much you pay in income taxes for 2008.

Tax Tip 1

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If your employer provides health care using a health savings account and you have not made your full contribution, you may still do so. If you recently were allowed access to a HSA plan, you can still make the full year’s contribution. If you have a Flexible Savings Account or FSA, you may be able to set aside more for next year if you were unable to set aside enough for this year. HSA contributions are fully tax deductible.

Tax Tip 2

It has been a rough year for investments. If your retirement plan is tax-deferred, you need not worry about the losses you faced this year. Smart investors took advantage and still are, of one of the cheapest markets in a generation. Increasing your contribution this year will help in the long-term.

If you have stock that lost a great deal, those loses, provided you sell it, can be spread out over the course of three years or used against profits you may have taken on previous sales. You can buy back the depreciated shares after 31 days.

This might be a good time to convert your traditional IRA to a Roth IRA. Just keep in mind that it will likely raise your adjusted gross income or AGI. So before doing so, consult with your tax preparer. If you are self-employed, set up a retirement plan for yourself.

Certain plan contribution limits have been adjusted.

  • Defined Contribution Plan – maximum annual contribution limit is $46,000 for 2008 ($45,000 for 2007)
  • Defined Benefit Plan – maximum annual contribution is $185,000 for 2008 ($180,000 for 2007)
  • SIMPLE (Savings Incentive match plans for employees) – $10,500 (with $,2500 catch up) for 2008 (same limit as for 2007)
  • IRA’s – maximum contribution when covered is $5,000
Tax Tip 3

You can always ask your employer to defer your bonus until the following year. Home improvements can make a difference and there are tax credits for hybrid vehicle purchases as well as the installation of energy efficient or energy generating equipment to your home.

Tax Tip 4

Don’t forget the home business. It might seem like a hobby but the IRS might see it as something else entirely. Don’t miss out on the deductions that you may be eligible to receive.

For your business in your home to meet those requirements, it must be exclusive, regular, and for your business with the business part of your home as the principal place of business, place where you meet clients or customers or a separate structure you use in connection with business.

The deduction is calculated on a comparison of the size of your home office to your whole house – most common way to calculate is to divide the area length used for business by the total area of your home.

Tax Tip 5

Do not fall prey to the quick filing return. If you get a return in excess of $300, consider adjusting your W-4 form at work to allow for fewer taxes to be taken from your check. That money is given to the government each pay period and held without any payment of interest to you, the taxpayer. Filing for a quick return only takes more of your money away. Make the adjustment this year.

You may qualify for a free preparer in your area. Qualified volunteers offer free tax filing help to low-income taxpayers.

Check out these free tax help programs:

Tax Tip 6

Prepay your property taxes or pay the full amount (in many cases this will net you a savings as well). Make charitable donations. Prepay January’s mortgage in December.

And lastly, if you plan on buying into a mutual fund, wait until 2009. Year-end distributions in these funds will find you paying taxes for an investment year you were not involved in. If you are holding funds in a tax-deferred account, this problem does not apply.

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