Mind Your Tax Breaks

Mind Your Tax Breaks

It's time to stop ignoring the impending tax deadline and start thinking about what you owe. But here's the good news: This year, you might qualify for some extra breaks.

Smart people love making jokes and observations about taxes. Perhaps this is because only a brilliant mind could understand enough of the tax code to find it funny. If you don't quite measure up to the likes of Albert Einstein and Alan Greenspan, you could probably benefit from a few pointers about 2007 deductions and credits.
Retirement savings means savings now

It isn't too late to make a tax-deductible IRA contribution for 2007. The deadline is April 15th, and the tax-deductible contribution limit is $4,000, or $5000 if you're over 50.

On top of the IRA contribution deduction, you may also be eligible for an IRA contribution credit. If your adjusted gross income is less than $26,000, or $52,000 for married couples filing jointly, you might qualify for a credit of up to 50 percent of your $4,000 contribution-which may reduce your tax bill by up to $2,000.

Tax breaks: A joy of parenthood

Don't evict your kids just yet; those adult children might be your ticket to another tax break. Full-time students can be claimed as dependents as long as they're under the age of 24 and living with you. You also have to be responsible for more than half of their living expenses. If they aren't in school, the same rules apply, but the age limit is 19.

Remember, too, that you can deduct higher education expenses. If you're footing the bill for college, and your modified adjusted gross income is less than $80,000 (or $160,000 if married and filing jointly), you can deduct up to $2,000 of qualified education expenses. If your modified adjusted gross income is below $65,000 ($130,000 if married and filing jointly), you can deduct up to $4,000.

Your younger children may give you access to a tax credit against your childcare expenses. If you work full-time and your income qualifies, you can take a credit of up to 35 percent of eligible expenses, assuming that you aren't already using a childcare reimbursement plan through your employer. Eligible expenses are capped at $3,000 for one child, or $6,000 for more than one.

Mortgage help

If you purchased a mortgage insurance policy on or after January 1, 2007, you can deduct the premiums on your 2007 return. And, if your lender forgave some of your mortgage debt in that same year, you don't have to pay income tax on the amount forgiven. You do have to report it though, so make sure that you have an IRS Form 982 handy.

Take advantage of every tax break you can. Then, maybe you'll be the one making amusing and quotable quips about the size of your refund.