Today’s guest post is by the Internal Revenue Service. Every year there are changes to the tax code. This year is better than most with only a few changes from 2006.  I really encourage everyone of low or moderate income to look into the Saver’s Credit. If you qualify the IRS will give you a tax credit of up to 50% of what you contribute to a retirement plan.  This includes employer sponsored retirement plans such as 401ks and individual plans such as IRA’s.  The Saver’s Credit can create some major tax savings while helping you to save for retirement. A little known secret is you can contribute to an IRA as late as April 15, 2008 and still take the deduction on your 2007 tax return!

Taxpayers should be aware of important changes to the tax law before they complete their 2007 federal income tax forms. Here are some changes that may affect your return.

• AMT Exemption Increased for One Year. For tax-year 2007, Congress raised the alternative minimum tax exemption to $66,250 for a married couple filing a joint return. The exemption rises to $33,125 for a married person filing separately and to $44,350 for singles and heads of household. While the vast majority of taxpayers can file as usual, about 13.5 million taxpayers who file any of five tax forms affected by recent tax law changes related to the AMT will have to wait until Feb. 11, 2008, to file their returns. IRS.gov has more information on this important subject, including downloadable copies of affected forms and questions and answers.

• Extender Tax Breaks Reappear on IRS Forms. Several popular tax breaks, renewed too late to be included on 2006 forms, once again appear as separate items on various 2007 IRS forms. As a result, unlike last year, eligible taxpayers will no longer have to follow special instructions in order to claim the deduction for state and local sales taxes, the educator expense deduction and the tuition and fees deduction.

• Saver’s Credit. This year for the first time income limits for the saver’s credit are adjusted for inflation. The saver’s credit supplements other tax benefits available to low- and- moderate income taxpayers who save for retirement. Begun in 2002 as a temporary provision, the saver’s credit is now a permanent part of the tax code. Use Form 8880 to claim the credit.

• Mortgage Insurance Premiums May be Deductible. Some borrowers may be able to deduct mortgage insurance premiums paid on mortgages taken out or refinanced during 2007. The deduction for mortgage insurance premiums is phased out for taxpayers with adjusted gross incomes exceeding $100,000 ($50,000, if married filing separately). Claim this deduction on Schedule A, Line 13. Further details are in Publication 936.

• New Rules for Giving to Charity. To deduct any charitable donation of money, taxpayers must have a bank record or a written communication from the recipient showing the name of the organization and the date and amount of the contribution. Though taxpayers are already required to keep records to support their contribution deductions, this new provision is designed to provide greater certainty, both to taxpayers and the government, in determining what may be deducted as a charitable contribution. See Publication 526.

More information about the changes can be found on IRS.gov and in various IRS documents, including the Instructions for Form 1040.

Remember that for the genuine IRS Web site be sure to use .gov. Don’t be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.
Links:

• IRS FS 2008-1 Highlights of 2007 Tax Law Changes
• Form 1040 instructions (PDF 941K)
• Publication 526 Charitable Contributions

Happy Valentine’s Day!

A little off topic today, and I’m doing a little duel tasking today. I need some time to prepare a nice dinner for my Valentine tonight! Here is a post from my personal blog that I would like to share here also!

I have been trying to think of a way to thank all my readers this Valentine’s Day, and to let you know how much I appreciate you. It just wouldn’t be practical to send chocolates, or flowers, or cards. I could send e-cards but that might be a little spammy. So I thought and thought and then I thought some more. I wanted to make sure whatever it was went to my readers, and not those who were just passing through. That’s why this paragraph is a little long and wordy!

So I finally came up with an idea, it’s not much, but it fits my budget! I am giving away links, to everyone who wants one. Here is how it will work. This blog is a do-follow blog and I have Comment Luv installed. That means if you comment on a post you get a link back to your blog plus, comment luv adds a link back to your last post. And of course they are all do-follow links.

Now usually I just delete comments that I feel are blatant self-promotion, but on this post I am welcoming it! I’d like it if you would tell me a little bit about who you are, but if you are in a hurry go ahead and make a one word comment, or no comment. You could even include another link to your blog. (Only one please)

Now only a few restrictions. This is a PG-13 blog so if your site is adult, gambling, or adult pharms, than I’m going to have to say sorry, this offer doesn’t apply to you. And if you like my idea, feel free to copy it. Just please be nice and provide a link back to this post.

Henry Paulson, the Unites States Treasury Secretary announced on Friday that Congress has approved the $167 billion, debt financed, Economic stimulus package, and that the IRS will be working through the tax season in order to send out the “rebate” checks starting in May of 2008.

I hate to break the news to everyone, putting the country even further in debt isn’t going to provide any long term stimulus to the economy,  the IRS has enough trouble keeping up with tax season without adding the task of sending out  millions of rebate checks, and technically these are not rebate checks, they are prepayment checks, there is a difference.

While everyone in Congress and the media are talking about Rebate checks, when you visit the Internal Revenue Service they are referring to “advance payment checks”. Is there a difference? Yes! Quite a bit. A rebate is generally understood to be a “giving back” of funds that were already paid. If these were true rebate checks, they would be a refund of taxes previously paid. But in fact, the checks will be prepayments of tax refunds. Details are sketchy right now, but I would expect that with the prepayment checks going out in May, there will be fewer and smaller tax refunds in early 2009.

It is also unlikely that he so-called rebate checks will help the economy. The idea behind the checks is that the people would run with the money to their nearest store and spend it on some type of “stuff”. This would give retailers a boost and keep the economy from falling into recession. Yet, when prepayment checks were issued in 2001, over half the recipients used the money for savings or paying down debt. It sounds like this time won’t be any different. According to the surveys I have seen, most people plan to use their rebate check to pay down debt.

For me, I’ll be sending my check right back to the IRS. It will help towards paying my quarterly estimated tax payments. What will you be doing with your prepayment check?