1. Change in marital status:A marriage or divorce can alter the amount of tax refund or balance due. Tax rate schedules, exemptions, and standard deductions all change depending on filing status.
2. Birth of a child: You cannot clam a child as a dependent until a social security number is obtained. A child born on the last day of the year, with a social security number, qualifies for the 100% exemption allowance.
3. Planning for a child's college education: There are several tax-favored options available for college savings, e.g. Coverdell ESA and a Qualified State Tuition Plan.
4. Death of a family member: If you inherit income, such as an IRA or pension plan, you have options for taking distributions. Each option has a different taxable income recognition.
5. Sale or purchase of a home/second home:When you sell a primary home, the law allows or a generous exclusion for the profit made. Most married home sellers can take up to $500,000 of profit tax-free. For the second home (non primary residence) the profit exclusions are not available.However, real estate tax and mortgage interest may be deductible.
6. Changing jobs: In some cases, direct moving expenses are deductible if a new job takes you to a new location. Mileage changes from the old job and old home must be satisfied to qualify.
7. Decision to retire or continue working: Depending on you age and amount of earned income (i.e., wage and self-employment income), Social Security benefits may be reduced. Depending on the amount of earned and other income, your Social Security benefits may be included in taxable income.
8. Sale of capital assets:You should time the sale of assets to reap the most tax benefits before taking action. For example, for taxpayers in the 10% or 15% tax brackets, capital gain tax rates are 5% in 2007 and 0% in 2008. These may change in 2009.
9. Charitable contributions:In a year that you elect the standard deduction over the itemized deductions, contributions made are not allowed as additional tax deductions. Try grouping contributions in a tax year in which you will itemize deductions.
The above tips are intended to be generalized statements and not legal, accounting, or other professional advice. Prior to implementation, consult your tax and financial advisor a for additional discussion and clarification.
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