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Be thorough to get a bigger tax return

Friday, February 22, 2008

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Tax time can be a stressful time for many people, but completing an early return can alleviate it.

"By completing your return early, you not only beat the rush of filers at the end, but also can receive your refund sooner," Tony Smiley, Manager of Stadler & Co., Brazil, said.

Smiley said his company and other tax professionals have had to hold on filing some tax returns because they were waiting on Congress to make a decision on the Alternative Minimum Tax (AMT).

"Because Congress sat on a decision on the AMT, we had to wait to get forms ready for various portions on returns, such as the education credit," he said.

For the most effective returns, Smiley said residents should make sure to choose their correct filing status, but separated couples may be better off filing as "married, but separate."

"Filing a married joint return has the lowest tax rate, but if an individual is separated and paying alimony or child support, it can be better if they filed their own return to ensure they get it," Smiley said. "If filed jointly, the return may be smaller because money can be taken out for support payments."

One thing to remember, for those who have children, is the rules for applying for the extra child tax credit.

If a child turned 17 during 2007, the filer may not count them toward the extra credit, although they can still list them for the regular dependent deduction.

Also, for those who have a 529 Plan, which invests money for a child's higher education, Indiana is now allowing for a 20 percent deduction, up to $1,000, on state tax returns only.

"Another deduction people tend to forget to look into is the deduction for Long-Term Care Insurance Partnership Programs," Smiley said. "Unlike regular long-term care insurance, like with Medicare, this protects your assets and premiums are 100 percent deductible on state tax returns for Indiana."

While residents can file their own taxes to save on preparation costs, Smiley said there are advantages to using a tax professional.

"Residents can ask us questions and get answers right away, and if we don't know the exact answer, we can do the research for them," he said. "They can also receive an instant refund in which a third-party bank gets involved. Essentially, an instant refund is similar to a short-term, high-interest loan."

He also suggests utilizing direct deposit when filing a tax return to ensure receiving a refund.

"This way you know when you receive your refund and don't have to wait on the mail system to bring it to you," Smiley said.

Maximizing deductions is an important part of filing tax returns and helps to get residents the biggest return possible.

"I believe it is our duty as Americans to pay our taxes," Smiley said. "However, I also believe it is our right to try to get back every possible penny we can."

NEWEST TAX LAW CHANGES

Here are a few of the changes in tax laws which will affect returns for the 2007 tax year:

* Standard Deduction Increased -- For most people who don't itemize deductions, the basic standard deduction increased in 2007 to $7,850 for head of household (up from $7,550 in 2006), $10,700 for married taxpayers filing jointly and qualifying widows or widowers (up from $10,300 in 2006), $5,350 for married taxpayers filing separately and single people (up from $5,150 in 2006)$5,350 for single people.

* Increased Contribution Limit for 401(k) Plans. The maximum employee contribution rises to $15,500 from $15,000 for these and similar workplace retirement plans including 403(b)s and the federal Thrift Savings Plan. The limit for workers age 50 and older rises to $20,500, also a $500 increase from 2006.

* 401(k) maximum salary deferral increases to $15,500 ($20,500 for 50 and older).

* Simple maximum salary deferral increases to $10,500 ($13,000 for 50 and older).

* IRA contribution limit remains at $4,000 ($5,000 for 50 and older).

* Standard Mileage Rate for business driving increases to 48.5 a mile. Rate for medical and moving mileage changes to 20 a mile. Rate for charitable driving stays at 14 a mile.

* Social Security taxable wage limit increases to $97,500. Retirees under age 65 can earn up to $12,960 without losing benefits.



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