Sacramento Tax Tips

Social Security Update

Another increase in 2008. The earnings base jumps to $102,000. Employees can pay a whopping $7,803 in social security taxes. Employer will match an identical amount! Self-employed folks could face both halves.

Retirees get a 2.3% increase in benefits. A big chunk of the increase will go for medicare premiums. As this was printed we had not heard the official figure, but the premium is expected to go from the current $93.50 to $109.40. Those with 2006 income over $80,000 ($160,000 for couples) will pay even more. They pay a surcharge. The surcharge rises from $30 to $160 as income rises to $200,000 ($400,000 for couples).

Early Retirees who continue to work are limited on how much they can earn. Although you can collect Social Security as early as age 62, you “normal retirement age” comes later. For 2007 early retirees could earn no more than $12,960 before beginning to re-pay some Social Security. For 2008, the figure goes well up to $13,560.

Foreclosures & Debt Relief

We saw a rash of home foreclosures in 2007. Tax issues can make a bad year even worse. Suppose you default on a $300,000 loan, and the bank sells the home at auction for $280,000. You just lost your home, and your credit is ruined. IRS says you also have $20,000 of income from cancellation of the debt the bank couldn’t collect. Sounds cruel, but it’s true. There are ways to sidestep the income, but they are complex. Let’s hope Congress agrees on more gentle rules.

Last-Minute Tax Savers

These involve moving deductions from 2008 into 2007.

Contributions. If there are contributions already scheduled, consider if you can afford to make them this year. Get the savings now. If you’re thinking of cleaning out the garage, do it now. Call your favorite charity, make a good list (possibly even a couple of snapshots!), and get your deduction in 2007.

Business/Work Supplies. If you buy office supplies, think about stocking up in December. Load up on paper, toner or printer cartridges, envelopes, maybe even some extra postage stamps. You can also buy business fixtures or equipment, but must bea ble to show the equipment was actually used in 2007.

Landlords/Businesses. Are there maintenance items you’ve been putting off? You get the deduction in 2007 if you do the work in 2007. Consider painting, carpet cleaning, replacing screens or furnace filters.

Timing of Income/Expense. An expense item is counted when you pay. Sign the check. Sign the credit card slip. Postmark the mail. When the funds leave your control, payment has been made.

With income, you cannot simply wait to cash a check – IRS says you have “constructively received” the money – it’s yours right now. (You are free to delay billings, though!)