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Bob, Bel Air: If the company I worked for last year is now out of business, the owner is out of the country and I did not receive a W-2, what should I do about the income I earned?
SC&H: Even though it is the responsibility of your employer to provide you with a W-2, it is your responsibility to file a timely tax return with the IRS and the state. You should utilize your final pay stub for 2007 and prepare your return using that information and other information available to you. You should attach a statement to your return, indicating your situation and how you determined the amounts you claimed as wage income and withheld taxes.
Carla, Reisterstown: My 19-year-old daughter is a full-time student living at home. She began a full-time position in September 2007 making $27,000 a year. Should we still claim her as a dependent on our tax return?
SC&H: The answer to your question is probably yes. If your daughter is a full-time student living at home, then you may claim her as a dependent on your tax return. This assumes that you provided more than one-half of her support during 2007. If you do this, your daughter may not then claim herself on her individual income tax return. You should analyze the various education tax incentives available to both you and your daughter and determine which filing position is correct and most beneficial for the family.
A baltimoresun.com reader, Lutherville: My husband and I have a joint Adjusted Gross Income (AGI) of more than $175,000. It seems that we are no longer eligible for many deductions as credits, such as the education credit and the child care credit, and our itemized deductions are also limited. How can we counter this? It seems we pay so much in taxes every year, and the only savings we can realize are the mortgage interest and taxes. There has to be a better way.
SC&H: Many recent tax incentives, including the economic stimulus package just signed into law, are geared towards reducing taxes for lower and middle income taxpayers. In addition to the breaks you described in your question, you are also likely not eligible for deductible IRA deductions, passive losses, miscellaneous itemized and medical deductions, Roth IRAs and other tax reduction strategies.
Strategies to consider: • Shifting income to lower tax bracket family members • Deferring income through employer qualified and nonqualified retirement plans • Maximizing the use of your employer's "cafeteria plan" to pay for dependent care and medical expenses on a pre-tax basis • Consider investments in oil and gas and certain other financial instruments that can reduce your income, even at your income levels • Tax-free municipal investments • Save for college in a Section 529 plan • Charitable contributions are still deductible, at your income level, AMT is likely an issue, and charitable gifts are not impacted by AMT • There are some strategies to have children utilize education tax credits if you cannot take advantage of them • Maximize long-term capital gain opportunities
We firmly believe there is almost always something practical and legitimate that can be done to reduce your income-tax burden.
Answers to selected questions are published in The Sun's Money & Life section on Sundays and online on Mondays.
