TBO.com - TBO is Tampa Bay Online

Make Use Of Tax Breaks People Commonly Ignore

ADVERTISEMENT

The Tampa Tribune

Published: March 29, 2009

This filing year, with money tighter than it has been in decades, we can all benefit from seeking out that extra cash. That being said, potentially millions of dollars in tax breaks are ignored every year.

I've compiled a list of the deductions, credits and strategies that can put more money in your pocket.

If you own your own business: You may have fallen into the trap of thinking that the money you get from selling your business will fund your retirement. Big mistake, notes Barbara Weltman, author of "JK Lasser's 1001 Deductions and Tax Breaks 2008." "That business may be all about you. You may be so critical that there is no business without you. Plus, you are missing a huge opportunity to shelter income in one of several retirement accounts." A defined benefit plan can allow you to sock away up to several hundred thousand dollars in deductible contributions per year. A solo 401(k) is another good option. Keogh plans (if you have employees) and SEPs (if you don't) are also on the menu.

If you're not making as much as you used to: Your lower income may open the door to convert assets in a traditional IRA to a Roth IRA. The rules state that you can only convert to a Roth in a year in which your adjusted gross income is less than $100,000, and you have until your tax-filing deadline to do it. And the benefits can be significant. Say you're 50 and the value of your IRA is as low as it's ever going to be. You could let the money remain in the account, rebound to its prior value then let it continue to grow until you are 701/2 years of age and are forced to take distributions at your current tax rate. Or, you could pay the taxes now at your current rate, and then never have to pay taxes again.

If you're heading back to school: Education tax breaks are among the most missed. There's an extensive list of them, but you can only take one in a given year. The two to consider are the Lifetime Learning Credit, which is worth up to $2,000 off your tax bill (it phases out if your adjusted gross income is more than $57,000 for singles, $114,000 for couples filing jointly), and the Tuition and Fees deduction, which reduces your taxable income by up to $4,000 (it phases out if your AGI is more than $80,000 for singles, $160,000 for couples).

If you want to pass assets to your children: The down stock market makes it a very good time to give money away. If you are financially independent and want to move assets out of your potential estate, you can give up to $12,000 a year to any person you like (a couple can give $24,000) without running into lifetime gifting restrictions or a gift tax. Giving shares of stock that have sunk (particularly ones you believe will come back) is a way to move any future appreciation out of your estate and into that of your children or other beneficiaries.

Jean Chatzky is the financial editor for NBC's "Today," and a contributing editor for More magazine.

Share this:

Loading Comments...

Email Print

ADVERTISEMENT