Be sure names and social security numbers match up for your personal exemptions. The IRS will disallow the exemption for any mismatch. (Hint, this occurs primarily to women who marry or remarry and change their last name without notifying the Social Security Administration.) Contributions to certain retirement plans including IRAs and SEPS can be made until April 15th or tax filing date, and still deducted for 2008. This year’s IRA contribution limits are the lesser of $5,000 or earned income. (Remember, if you are 50 years old as of 12/31/2008 you may be able to contribute an additional $1,000 catchup contribution to your IRA.) If you are a part-year South Carolina resident, you must prorate your income based upon the date you established residence in South Carolina. Also, all retirement income except Social Security is subject to SC income tax. If you are over 65, however, South Carolina will allow an exclusion for each individual of up to $15,000. Don’t forget to deduct long term care premiums if they are from an eligible policy. Deductions are subject to the 7.5 percent of adjusted gross income limitation, as well as the following age and premium limits: Over 60 years but not over 70; $3,080 in 2008 and $3,180 in 2009. Each spouses’ premium may be deducted separately, for a total of $6,160. Payments in excess of long-term care benefits can be deducted as medical expenses. Many individuals are facing job losses in these tough times, and there are special tax considerations to be aware of. Severance pay, accumulated sick leave pay and vacation pay are all taxable. Unemployment compensation is also subject to income tax as well. If you need funds to help you through a tough period you can tap your IRAs and 401(k) plans, but be careful. If you are under 59 you will have to pay taxes plus a 10 percent penalty on amounts withdrawn from these accounts, unless the money is rolled back into an IRA or 401(k) within 60 days. A better alternative would be to borrow from your 401(k) if your employer allows, and pay back the loan into your own account. Read the fine print, though. If you are uncertain about your job prospects, separation from your employer can trigger a forced repayment of the loan; any amount not paid back would be fully taxable, and possibly subject to a penalty as well. Money can be taken out of a 401(k) without the 10 percent penalty if the money is used to pay medical premiums while unemployed, or if the employee is over the age of 55. Job loss can also mean the added stress of losing health care coverage as well. There is some relief, though. The American Recovery and Reinvestment Act of 2009 mandated employer provided subsidies of up to 65 percent for COBRA coverage, for employees separated from their jobs involuntarily between Sept. 1, 2008 and Dec. 31, 2009. The subsidy phases out for single taxpayers with adjusted gross income of between $125,000 and $145,000, and married taxpayers with adjusted gross incomes of between $250,000 and $290,000. Retired people are re-entering the workforce in increasing numbers, so it’s important to know the rules regarding Social Security benefits and earned income. First, if you are below your full retirement age, income earned above a certain threshold ($13,560 in 2008) will reduce Social Security benefits by $1 for every $2 earned. Above full retirement age there is no reduction. Remember, though, that higher earned income can make more of your Social Security benefits taxable, up to 85 percent at the highest levels. Finally, don’t forget to sign your return, and consider using certified mail. And even If you find yourself waiting at the end of a long line of cars at the post office on April 15th, relax and take a deep breath; you made it.
Here’s a last-chance checklist for the tax return finish line.
AFTER PLAYING PRANKS ON our friends, the following few weeks after the first of April is a time to sharpen pencils and do last minute number crunching; income taxes are due this month, and that’s no joke.
Here are our 10 timely tax items as we approach April 15th.
- Not ready? If you need an extension the IRS and South Carolina are usually able to oblige. You will need to file form 4868 for Federal tax and form SC4868 for South Carolina to obtain an extension until Oct. 15. Remember that an extension to file your return doesn’t extend the time to pay tax. You need to send in your income tax due with the extension, or face a penalty when you do file.
Steven Weber, registered investment advisor, and Gloria Harris, director, client communications, are members of the Bedminster Group, a fee-only advisor providing investment and financial counsel to clients in the Lowcountry since 1997. The information contained herein was obtained from sources considered reliable. Their accuracy cannot be guaranteed. Furthermore, the opinions expressed are solely those of the authors and do not necessarily reflect those from any other source.