Liberty Tax Tips for filing a 2007 return and preparing for tax year 2008

SPLIT DIRECT DEPOSIT OPTION

Liberty Tax Service reminds you that that you can have your refund direct deposited in up to three different banks or financial institutions.  Taxpayers can use the direct deposit line on the Form 1040 to specify a deposit to one institution. For more than one financial institution, taxpayers should use Form 8888, Direct Deposit of Refund to More Than One Account.

MORTGAGE PREMIUM DEDUCTION

Did you buy a home in 2007? Liberty Tax Service reminds you that you may take an itemized deduction for “qualified mortgage insurance premiums” paid or accrued in 2007 as a result of home acquisition debt.  The deductible amount is subject to a phase-out of 10% for taxpayers who are married filing jointly with an adjusted gross income of over $100,000 ($50,000 for taxpayers filing married filing separately).

CHANGES FOR CHARITABLE CONTRIBUTIONS 

Liberty Tax Service reminds you that the IRS has imposed stricter standards for the condition of some items donated to charities.  No deduction is allowed for clothing and household items unless the donated property is in “good used condition or better.”. The rule does not apply to any contribution of a single item for which a deduction of more than $500 is claimed if the taxpayer includes a qualified appraisal with the return.  Monetary charitable contribution deductions will be disallowed unless the donor maintains a record of the contribution.

SALES TAX DEDUCTION

Liberty Tax Service reminds you that taxpayers can take advantage of state sales tax deductions through 2008 if they itemize deductions.  Those who live in one of seven states without a state income tax may deduct their state sales tax when they itemize.  Taxpayers in states with state income taxes can choose to deduct their state income taxes or state sales taxes, whichever is more advantageous. 

VEHICLE DONATION TO CHARITY

Do you plan to donate your used car to a nonprofit organization?  Liberty Tax Service reminds you that you may not be able to claim the “blue book value” of the car.  The IRS has placed limitations on the amount that may be deducted for a vehicle donation. The amount that can be claimed will be based on how the charity or nonprofit organization actually uses the vehicle. If the organization sells the donated vehicle without using it in any significant way, the charitable deduction cannot exceed the gross proceeds of the sale. If the organization uses the vehicle, but does not sell it, the taxpayer must have documentation of the vehicle’s value, or fair market value. The receiving organization should issue Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes exceeding $500.00. One copy of this form should be kept with the taxpayer’s records and the other should be attached to the tax return.

CHILD TAX CREDIT

Liberty Tax Service reminds you that the child tax credit remains $1,000 for a qualifying child under age 17. A qualifying child is a son, daughter, stepchild, eligible foster child who is a dependent, brother, sister, stepbrother, stepsister, or descendent of one of them (including grandchild, niece and nephew). This credit is nonrefundable, and can only reduce the taxpayer's income tax.

ADDITIONAL CHILD TAX CREDIT

Liberty Tax Service reminds you that a refundable additional child tax credit may be available to those who qualify and have not used up the available amount. A military taxpayer’s nontaxable combat pay is added to the earned income which may give a larger credit. The percentage used to determine the credit is 15% of the earned income amount over $11,750. 

CHILD AND DEPENDENT CARE CREDIT

Liberty Tax Service reminds you that a credit for up to 35% of qualified child and dependent care expenses paid is available for taxpayers who pay childcare in order to go to work. Qualified expenses may be allowed for up to $3,000 for one eligible individual ($6,000 for two or more). Persons employed or looking for work who must pay someone to care for dependents under age 13 or for a qualified disabled person may also be able to take this credit.

NET CAPITAL GAINS AND LOSSES

Liberty Tax Service reminds you that the maximum tax rates for net capital gains are generally 15% or 5%. Short term capital gains are capital assets such as stocks or bonds held for one year or less and are taxed at ordinary income rates.  Long-term capital gains are capital assets held for longer than one year before they are sold.  The holding period begins the day after acquiring these assets and ends on the day of sale.  Capital gains and losses are declared on Schedule D, Capital Gains and Losses. Gains on collectibles, depreciated property, and certain small business have different rates.

DEDUCTIBLE MILEAGE RATES

Liberty Tax Service reminds you that the standard business mileage rate is 48.5 cents per business mile driven in 2007, and 50.5 cents per mile in 2008.  The deductible amount for mileage driven during a move and/or for medical purposes is 20 cents per mile in 2007, and 19 cents per mile in 2008. Charitable mileage is deductible at 14 cents per mile in 2007 and 2008. Be sure that you document this mileage by keeping a log or other written record.

SECTION 179 DEDUCTION

Liberty Tax Service informs you that the new limit for the section 179 deduction is $125,000 for qualified business property placed in service in 2007.  The section 179 deduction is for tangible personal property such as machinery and equipment instead of depreciating them over the useful life of the items. Section 179 can only be deducted in the year of purchase.

SOME DISABLED VETS MAY AMEND RETURNS FOR CWT BENEFIT REFUNDS

Liberty Tax Service reminds you that refunds may be in order for up to 19,000 disabled American veterans due to a recent court decision on their Compensated Work Therapy benefits.  The U.S. Tax Court recently ruled that payments made to disabled veterans through the CWT program are not taxable, but can now be classified as benefits. Disabled veterans who have been taxed for these CWT program benefits can amend their returns for tax years 2004, 2005, or 2006 by filing Form 1040X.  Payments were issued on Form 1099 to disabled veterans from the Department of Veterans Affairs for the CWT program since 1965.  The goal of the CWT program is to help disabled veterans who can’t work learn new career skills in partnership with private businesses. 

EARNED INCOME CREDIT (EIC)

Liberty Tax Service reminds you that the EIC income level limits for 2007 are:

More than one qualifying child – less than $37,783 for single taxpayers, and $39,783 for married filing jointly.

One qualifying child: less than $33,241 for single taxpayers, and $35,241 if married filing jointly.

No children: less than $12,590 for single taxpayers, and $14,590 if married filing jointly.

The maximum investment income for 2007 is $2,900.

EARNED INCOME CREDIT (EIC) AND MILITARY COMBAT PAY

Liberty Tax Service reminds you that if you serve in a combat zone, you may elect to include combat pay in the earned income amount used to figure your earned income credit for 2007 and 2008.  The maximum earned income credit for two or more qualifying children is $4,716 and for one child it is $2,853. For a taxpayer who does not have a qualifying child, the maximum earned income credit is $428. This will expire after 2007.

ALTERNATIVE MINIMUM TAX CHANGES FOR 2007

Due to tax legislation just passed and signed by the President, tax relief is in sight for over 20 million Americans who faced a sudden tax hike because they would have qualified for the Alternative Minimum Tax when filing their 2007 tax return. Liberty Tax Service informs you that in 2007, the alternative minimum tax exemption amounts will increase to $44,350 for single and head of household filers, $66,250 for married filing jointly or qualifying widower, and $33,125 for married filing separately.

TAX BREAK FOR ELIGIBLE EDUCATORS

Liberty Tax Service reminds you that eligible educators who spend their own money on classroom supplies may qualify for a tax break when filing a 2007 return. An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal or aide who works at least 900 hours in either a public or private school. The adjustment for these expenses, of no more than $250, can be claimed whether or not the taxpayer can itemize.

ADJUSTING YOUR WITHHOLDING AMOUNT

Liberty Tax Service reminds you that you can adjust the withholding amount and the allowances you are claiming by completing a new Form W-4, Employee’s Withholding Allowance Certificate, and giving it to your employer. Recent tax changes or personal changes such as marriage or divorce, birth of a child, and changes in employment or income may mean that too little or too much tax is being withheld.  If you need to have more money taken out of your paycheck, reduce the number of withholding allowances, or figure the additional amount of money that you would like withheld each pay period.

MOVING EXPENSES

Liberty Tax Service reminds you that if you’ve moved at least 50 miles during 2007 in order to start work at a new work location, you may be able to deduct some moving expenses. Your moving mileage is deductible at 20 cents per mile in 2007 and 19 cents per mile in 2008.  Deductible moving expenses include the cost of moving furniture and household items as well as your lodging en route. Always be sure to notify the IRS of your relocation, by sending a Form 8822, Change of Address, to the IRS Service Center where you filed your last return.

STUDENT LOAN INTEREST

Liberty Tax Service reminds you that taxpayers repaying a student loan (or education loan) may qualify to deduct up to $2,500 of their student loan interest as an adjustment to income.  There are AGI limitations which determine deductibility.  The credit may be phased out if your modified adjust gross income exceeds certain limits. For 2007, the phase-out levels are between $55,000 and $70,000 for single, head of household, and qualifying widow taxpayers, and between $110,000 and $140,000 for married filing jointly.  

INSTALLMENT PAYMENT PLAN

Liberty Tax Service reminds you that you pay the taxes you owe in installments if you can’t pay the total to the IRS by the tax deadline.   If you are not currently paying by an installment plan, complete Form 9465, Installment Agreement Request, and attach it to the front of the return.  You should send as much of the payment as possible with the return in order to limit penalty and interest charges which will continue accumulating until the total amount due is paid off.  Taxpayers who have already mailed or electronically filed their returns can mail Form 9465 to their appropriate IRS Service Center.  An IRS representative will contact you to discuss the situation and arrange the payments.

TUITION AND FEES DEDUCTION

Liberty Tax Service reminds you that qualifying higher education expenses such as tuition and fees you paid for yourself, a spouse, or a dependent may be deductible.  Up to $4,000 of these expenses can be deductible as an adjustment to income if your adjusted gross income is below $65,000 ($130,000 if married filing jointly).  The deduction is limited to $2,000 if your AGI exceeds that limit but is under $80,000 ($160,000 if MFJ).  The taxpayer cannot claim both this deduction and the Hope or lifetime learning credit for the same student in the same year.

RETIREMENT SAVINGS CONTRIBUTIONS CREDIT

Liberty Tax Service reminds you that if you contributed to an IRA or an employer-sponsored retirement plan in 2007, you may be eligible for a credit.  This nonrefundable credit is based on the return income and can be up to $1,000 per taxpayer. It can be taken in addition to the deduction of the traditional IRA contribution.

INDIVIDUAL RETIREMENT ARRANGEMENTS (IRAs)

Liberty Tax Service reminds you that for taxpayers covered by a pension plan at work, the modified adjusted gross income limit for deducting traditional IRA contributions has increased. A couple filing married filing jointly whose income is between $83,000 and $103,000 can take a partial deduction this year. Single taxpayers (including head of household filers) making between $52,000 and $62,000 can take a partial deduction. The contribution limit for 2007 is $4,000 ($5,000 if age 50 or older).

CASUALTY AND THEFT LOSSES FOR PERSONAL PROPERTY

Liberty Tax Service reminds you that casualty and theft losses on personal-use property can be claimed on your tax return if you have damage from unexpected events such as wildfires, hurricanes, tornadoes, or from a burglary or theft.  If the property is not completely destroyed, you need to calculate the loss to see if it is deductible.  Figure the  decrease in value by taking the lower of fair market value before the casualty or the adjusted basis and comparing it to the fair market value after the casualty.  This loss, minus any insurance reimbursements, is your actual loss.  Subtract $100 for each separate casualty or theft that occurred during the year.  The total of all casualty and theft losses must be further reduced by 10% of the taxpayer’s adjusted gross income to arrive at the deduction which will be reported on Schedule A, Itemized Deductions. 

ADOPTION CREDIT

Liberty Tax Service reminds you that the maximum adoption credit and exclusion amount is $11,390. This is also the maximum exclusion from income under an employer’s adoption assistance program.  The full credit will be allowed for adopting a special needs child, regardless of whether the taxpayer has qualifying expenses.  This is subject to phase-out modified adjusted gross income limits of between $170,820 and $210,820.

MEDICAL EXPENSES

Liberty Tax Service reminds you not to overlook medical deductions for which you qualify. Hearing aids, eyeglasses, contact lenses, hospital fees for nursing, physical therapy, lab tests and x-rays are all deductible. The mileage to and from a doctor's or dentist's office is deductible at 20 cents a mile in 2007 and 19 cents a mile in 2008, as are parking fees and tolls. You may also deduct mileage driven to fill prescriptions. Taxpayers who itemize can deduct non-reimbursed medical expenses that they paid during the year if these exceed 7.5% of their adjusted gross income. 

HOPE AND LIFETIME LEARNING CREDITS

Liberty Tax Service reminds you that there are two nonrefundable tax credits for payments made for qualified tuition and related expenses for post-secondary education.  The Hope credit remains at 100% of the first $1,100 of expenses and 50% of the next $1,100 expenses, for a maximum credit of $1,650. The lifetime learning credit gives a credit of 20% of qualified educational expenses not exceeding $10,000, for a maximum credit of $2,000. There are phase-out modified adjusted gross income levels for both credits. The limits are between $47,000 and $57,000 for single taxpayers, and between $94,000 and $114,000 for married filing jointly.

QUALIFYING EXPENSES FOR EDUCATIONAL CREDITS

Which educational expenses qualify for the education credits? Liberty Tax Service reminds you that tuition you paid for yourself, your spouse or a dependent to attend an eligible educational institution in 2007 should qualify.  The costs of books, supplies and equipment do not usually qualify but may qualify if these purchases are required by and paid to the school in order to attend.  The amount of credit for the Hope and/or Lifetime learning credits will be reduced for single taxpayers whose modified adjusted gross income is between $47,000 to $57,000 (between $94,000 and $114,000 for married filing jointly).

RESIDENTIAL ENERGY EFFICIENT PROPERTY CREDIT

Liberty Tax Service reminds you that for eligible property placed in service during 2007 you can claim a credit of up to $500 of the cost of certain energy efficient property. The residential energy credit may offer a tax break on a 2007 return if all installation is done and/or work was completed in 2007.  Residential energy credits apply to homes, houseboats, mobile homes, condominium, and qualifying manufactured homes.  The credit is for 2006 and 2007, and the maximum credit amount is $500 for both years.

ALTERNATE MOTOR VEHICLE CREDIT

Liberty Tax Service reminds you that you may no longer take this credit if you place an alternate motor vehicle in service in 2007. The credit is available in the year the vehicle is placed in service. The credits vary by the model and phase out once the manufacturer has sold 60,000 qualified vehicles.