You likely haven't filed your 2007 tax return, but it's not too early to take note of changes for 2008.
Capital gains tax will disappear for some, while the youngest investors might be in for a tax shock. Workers will be able to salt away more for retirement. And if your home is being reassessed this year, don't forget to file for Maryland's homestead credit.
Stay tuned, too. The emergency stimulus package to prop up the economy could bring on more tax breaks soon.
Here are some changes we know about so far:
Zero capital gains taxes. If you're in the 10 percent and 15 percent tax brackets in 2008, you won't pay taxes on long-term capital gains and most dividends. This tax break runs through 2010.
Those in higher brackets will still pay a rate of 15 percent this year.
The 10 and 15 percent brackets apply to singles with taxable income of up to $32,550 and married joint filers with taxable income up to $65,100. Taxable income is basically what you have left after taking deductions and personal exemptions.
Bob Trinz, a senior tax analyst with Thomson Tax & Accounting, says it's possible for higher- income investors to have part of their gains untaxed depending on the mix of income, deductions and long-term gains.
Say, a married couple's taxable income consists of $50,000 in wages and $30,000 in long-term gains on the sale of stock. In this scenario, $15,100 in long-term gains would not be taxed. That's the difference between $65,100 and $50,000. The rest of the long-term gains, $14,900, would be taxed at 15 percent.
Retirees living solely on investment income could reap huge rewards, too, says John W. Roth, a senior tax analyst with CCH, an Illinois provider of tax information.
Take a couple whose $80,000 income comes from qualified dividends and the sale of long-held stocks, he says. After the standard deduction and personal exemptions, the couple's taxable income could be below $65,100, he says. In other words, they pay no tax.
Kiddie tax changes. Congress raised the age of children subject to the so-called kiddie tax. This throws a wrench into plans of wealthy parents wanting to take advantage of tax-free capital gains by shifting securities to youngsters to sell.
For many years, the kiddie tax disappeared once a child turned 14. Congress has been pushing up the age. As of this year, the kiddie tax will apply to children through the age of 18, or 23 if they are full-time, dependent students.
The kiddie tax will come into play for 2008 if a child's unearned income exceeds $1,800. Any unearned income above $1,800 is taxed at the parent's presumably higher rate.
Unearned income is usually interest, dividends and capital gains. It doesn't include wages.
Ronald B. Hegt, senior tax partner with Hays & Co. in New York, says it still may be worthwhile for parents to give appreciated securities to new graduates or young newlyweds who are in low tax brackets but too old for the kiddie tax.
Changes to the kiddie tax also make 529 college savings plans more attractive for young children. Money invested in these plans can be withdrawn tax-free as long as it's used for college.
Rising IRA limits. You can put away $1,000 more this year in an individual retirement account. The new maximum contribution is $5,000, or $6,000 if you're 50 or older.
Homestead tax credit. One-third of Maryland homeowners every year have their properties reassessed by the state. The Homestead Tax Credit keeps tax bills in check by capping the amount of assessment subject to tax.
This credit used to be automatic. No more, thanks to a new law.
The credit is for principal residences only. This change is the state's way of making sure that the credit isn't being used for second homes.
It's a one-time application. If you're property is being reassessed this year, you should have received an application along with your new assessment notice. Or, you can apply for the credit online at www.dat.state.md.us until April 1.
If your property is being assessed in 2009 or 2010, you should wait to apply for the credit at that time.
Sparks accountant Gregory S. Horning says his firm "sent an e-mail blast to our clients" reminding them to apply for the credit.
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