Tax Tips
Parents can claim a tax credit of up to $1000 per child younger than age 17 at the close of the years 2003-2010. The child must be your dependant and related by blood such as a son or daughter, legal adoption, or foster child, or descendent of either, a stepson or stepdaughter, or an eligible foster child. The child's principal place of abode must be with the taxpayer for more than one half the year. Only children who are U.S. citizens or legal residents can qualify. The tax credit is phased out for taxpayers with high levels of income.
Points paid on a home mortgage are usually deductible as interest. If the mortgage is for the purchase or improvement of your principal residence, you can either deduct the full amount of the points in the year of payment or, if you aren’t itemizing your deductions that year, amortize the points over the loan term. Generally, points paid on refinancing must be amortized. However, you can write off any points you haven't yet deducted when you sell your home and pay off your mortgage.
If you have your own business, you should consider hiring your child to work after school or on vacations. The wages you pay your child for bona fide work are tax deductible. Your child will probably pay less in taxes than you would pay. In fact, the income could be considered tax free if the amount is less than your child's standard deduction. For 2008, a dependent child can take a standard deduction of the greater of $900 or the sum of $300 plus the child's earned income, up to the applicable standard deduction of $5450.00
One of the most powerful tax shelters available to the taxpayers is a tax qualified retirement plan. Within certain limits, contributions to fund the plan are immediately tax deductible, plan investment earnings are tax deferred, and plan participants including owners and employees and self employed individuals do not have to pay income taxes on plan benefits until they receive their distributions.
Profit-sharing plans: Unlike other plans, a profit-sharing plan is flexible. The plan can be designed so that the employer or plan sponsor is not required to make an annual contribution. The amount can be left to the company's discretion.
Section 179 deduction: This special election allows eligible businesses to deduct the full cost of annual asset acquisitions instead of taking ordinary depreciation. A business can expense up to $128,000 for the year 2008 and adjusted for inflation in 2009 and 2010. However, for the tax years beginning 2011 and thereafter, the maximum deduction will be reduced to $25,000 per year.
This limit is reduced dollar-for-dollar as annual asset acquistions exceed $430,000. The Section 179 deduction is limited to the amount of taxable income from the taxpayer's active trade or business. Some classes of property are not eligible.
Funds paid for smoking cessation programs and prescription medication to help alleviate the effect of nicotine withdrawal are considered deductible medical expenses. However, nicotine gum or other products obtained without a prescription are not considered a deductible expense.
Business Automobiles: You can claim deductions for the business-related use of an auto using either the standard mileage rate method or the actual expense method. You should use the method that will yield the largest deduction. However, once you've claimed accelerated depreciation for a business car in prior years under the actual expense method, you can not switch to the standard mileage rate method for that car in a subsequent year.
The standard mileage rate for business driving increased to 50.5 cents per mile effective January 1, 2008. If you use the standard mileage rate, you can separately deduct business parking fees and tolls, and any business portion of state and local personal property taxes. A business may also deduct its portion of loan interest.
Home office expenses: To qualify for a deduction related to an office in the home, you must have an area of your home used exclusively as your principal place of business. This includes a place of business where you meet or deal with patients, clients, or customers. A separate unattached structure that you used in connection with a business may also be eligible for the deduction. Space in your home used exclusively and regularly for administrative and management activity of your trade or business may be eligible for a home office deduction. However, you cannot have another fixed location where you conduct substantial administrative or management activities of the trade or business. Deductible expenses are proportionate to the space used for the business activity.
Hope Scholarship and Lifetime Learning credits: These two tax credits are available for the payment of qualified tuition and related expenses at an eligible institution. The Hope Scholarship Credit Is available for your own expenses or those of your spouse or dependents. The credit is limited to the first two years of post-secondary education. The student must carry a minimum half-time course load. The credit allows a maximum of $1800 for the eligible student. That is, 100% of the first $1200 of eligible expenses plus 50% of the next $1200 of expenses. The credit will phase out with modified Adjusted Gross Income of $48,000 to $58,000 ($96,000-$116,000 on a joint return).
Unlike the Hope Scholarship, the Lifetime Learning Credit is not restricted to the first two years of post secondary education. Undergraduate, graduate, and professional degree courses can qualify for the credit, including courses to acquire or improve job skills. The lifetime Learning Credit allows the taxpayer to deduct up to $2000 per taxpayer return (20% of expenses up to $10,000), regardless of the number of students. The credit is also subject to the same income phase-out amounts as the Hope Scholarship Credit.
