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Get Tax Credit for Retirment Savings Contributions

March 12, 2009 6:57 pm / Leave a comment

If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be able to take a tax credit.
The Savers Credit, formally known as the Retirement Savings Contributions Credit, applies to individuals with a filing status and income of:
Single with income up to $26,500
Head of Household with income up to $39,750
Married Filing Jointly, with incomes up to $53,000
To be eligible for the credit you must be at least age 18, not a full-time student, and cannot be claimed as a dependent on another person’s return.
If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 or up to $2,000 if filing jointly. The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.
When figuring this credit, you generally must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies for distributions starting two years before the year the credit is claimed and ending with the filing deadline for that tax return.
The Retirement Savings Contributions Credit is in addition to other tax benefits which may result from the retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.
For more information, review IRS Publication 590, Individual Retirement Arrangements, Publication 4703, Retirement Savings Contributions Credit and Form 8880, Credit for Qualified Retirement Savings Contributions. The publications and form can be downloaded at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).
Links:
Form 8880, Credit for Qualified Retirement Savings Contributions (PDF 46K)
Form 1040, U.S. Individual Income Tax Return (PDF 176K)
Form 1040A, U.S. Individual Income Tax Return (PDF 136K)
Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K)
Tax Topic 610

Standard or Itemized Deductions

March 11, 2009 9:54 pm / Leave a comment

Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than the standard deduction, you can usually benefit by itemizing.
The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. For 2008, they are:
Single $5,450 Married Filing Jointly $10,900 Head of Household $8,000 Married Filing Separately $5,450
Some taxpayers have different standard deductions. The standard deduction amount depends on your filing status, whether you are 65 or older or blind, whether an exemption can be claimed for you by another taxpayer, whether you plan to claim the additional standard deduction for state and local real estate taxes, and whether you have a net disaster loss from a federally declared disaster. If any of these apply, you must use the Standard Deduction Worksheet in the Form 1040EZ, 1040A or 1040 instructions.
Limited itemized deductions. Your itemized deductions may be limited if your adjusted gross income is more than $159,950 ($79,975 if you are married filing separately). This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses, investment interest and certain qualified cash contributions for relief efforts in a Midwestern disaster area.
Married Filing Separately. When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and should itemize their deductions.
Some taxpayers are not eligible for the standard deduction. They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months.
Forms to use. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.
These forms and instructions may be downloaded from the IRS.gov Web site or ordered by calling 800-TAX-FORM (800-829-3676).

Links:
Publication 17, Your Federal Income Tax (PDF 2.3MB)
Instructions for Schedule A, Itemized Deductions (PDF 77K)

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