Janell A. Israel & Associates
February 2007 Tax Newsletter
Happy
Valentine's Day
What's New in taxes:
Last-Minute Law Extends Tax Breaks
Just before
adjourning for 2006, Congress passed the Tax Relief and Health Care Act of
2006. President Bush signed the bill into law on December 20, 2006. The law
retroactively reinstates a number of tax breaks that had expired at the end of
2005, making them effective for 2006 and 2007. Here’s a brief overview of
what was extended.
* The itemized
deduction for state and local sales tax
was reinstated for 2006 and 2007. This is a boon for taxpayers in states
without a state income tax, but taxpayers who pay both state sales and income
taxes can deduct whichever is higher.
* Middle-income
taxpayers can claim a deduction for up to $4,000 of qualifying higher education expenses for 2006 and
2007. This is an above-the-line deduction so you don’t need to itemize to
claim it. However, income limits apply.
* Teachers can claim a deduction for classroom supplies that they pay for
out of their own pocket. This is also an above-the-line deduction, with a limit
of $250.
* The law also
extends a number of business tax credits and deductions, including the research
credit, the work opportunity and welfare-to-work credits, and the 15-year
recovery period for certain leasehold and restaurant improvements.
* The Energy Tax
Incentives Act of 2005 provided several tax credits and deductions intended to
promote energy conservation. Though these tax breaks generally were not
scheduled to expire until the end of 2007, the new law further extended certain
ones through 2008.
The new law makes
other miscellaneous changes to the tax code. For additional information and
guidance in your tax planning, give us a call.
Take These Deductions Even When You Don't Itemize
If you’ve
given up itemizing deductions, you’re not alone. These days over half of
all taxpayers find they’re better off using the standard deduction. But
even if you take the standard deduction, you can also deduct some individual
expenses. Consider the following.
* IRA and HSA contributions
You can deduct up
to $4,000 in contributions to a traditional IRA this year. That increases to
$5,000 if you’re age 50 or older. Income limitations may apply in some
cases. You can’t deduct contributions to Roth IRAs.
Health Savings
Accounts (HSAs) are IRA-like accounts set up in
conjunction with a high-deductible health insurance policy. You make annual
deductible contributions to your HSA. Contributions are invested and grow
tax-free, and you're allowed to withdraw money in the account tax-free to pay
for your unreimbursed medical expenses.
* Student loan interest and tuition fees
Deduct up to
$2,500 interest on student loans for yourself, your spouse, and your
dependents. You can also deduct up to $4,000 of tuition and fees for qualified
higher education courses. Income limitations apply, and you must coordinate
these deductions with other education tax breaks.
* Self-employment deductions
If you’re
self employed, you can generally deduct the cost of health insurance premiums,
retirement plan contributions, and one-half of self-employment taxes.
* Other deductions
Don’t
overlook deductions for alimony you pay, certain moving expenses, and early
withdrawal penalties. Teachers can deduct up to $250 for classroom supplies
that they buy themselves.
Contact our
office for more information on these and other deductions that could cut your
tax bill.
What's
New in Finances:
You Can Split Your Tax Refund
In past years,
you could ask the IRS to deposit your income tax refund into your bank account.
For your 2006 tax refund, you'll be able to have the IRS split your refund and
make deposits in up to three accounts at different financial institutions.
Examples of
accounts you can choose include checking, savings, IRAs, health savings accounts,
Archer medical savings accounts, and Coverdell education savings accounts.
It will be up to
you to verify that the institution will accept direct deposits, and in the case
of IRAs, to verify the year the contribution is for and the fact that the
contribution has been timely made.
Be Aware Of The Gender
Gap In Retirement Savings
Do women need to
save more for their retirement than men?
The answer is
yes, they do. Even though the rules governing social security and private
retirement benefits are officially gender-neutral, generally women
statistically accrue lower benefits than men. Thus, women generally need to
have a larger pool of retirement savings.
Why do women
receive lower retirement benefits? Social security and many other pension
benefits are tied to a worker’s earnings, and full-time working women
earn on average only 77% of their male counterparts. In addition, women are
more likely both to work part-time and to leave the work force entirely to
raise children, further diminishing the accrual of private pension and social
security benefits — the first two "legs" of a secure retirement.
Can women rely on
their husbands’ retirement savings? Women who rely on their husbands for
economic security would appear to be in relatively good shape financially. In
the event a husband dies, private pension plans are generally required to
provide benefits for the surviving spouse, and the same rule applies to social
security. In the event of a divorce, the court may award the wife a portion of
the husband’s pension benefit. Social security benefits also will be paid
to a divorced wife, based on the husband’s earnings, if the marriage
lasted at least ten years. But it’s also a sad fact that about 25% of
elderly single women live in poverty, compared to 5% of elderly women who are
married. It appears that divorce and the death of a husband do take a financial
toll.
It only makes
sense for a woman to build her own individual savings - the strong "third
leg" of a secure retirement. Every woman should realize that the man in
her life may not be willing or able to provide her with lifelong economic
security.
Take
a Break
Gender Issues: Living Longer But
Saving Less
Males outnumber
females in the
22% of women
business owners have no retirement investments. Among male business owners,
only 10% say they have no retirement investments.
The
information contained in this newsletter is of a general nature and should not
be acted upon in your specific situation without further details and/or
professional assistance. For more information on anything in the ONLINE
ADVISOR, or for assistance with any of your tax, business, or
financial strategy concerns, contact our office.
Securities
offered through AIG Financial Advisor, a registered broker-dealer and member NASD,
SIPC. AIG Advisor Group is the marketing designation for the wholly owned
subsidiary broker-dealer members of AIG. This message and any attachments
contain information which may be confidential and/or privileged and is intended
for use only by the addressee(s) named on this transmission. Investing in
securities involves risk, including the potential loss of principal invested.
If you are not the intended recipient, or the employee or agent responsible for
delivering the message to the intended recipient, you are notified that any
review, copying, distribution or use of this transmission is strictly
prohibited. If you have received this transmission in error, please (i) notify
the sender immediately by e-mail or by telephone and (ii) destroy all copies of
this message. If you do not wish to receive marketing e-mails from this sender,
please send an e-mail reply or a postcard to