Seven tax tips to put more in your pocket
Taxpayers can find tax breaks in charitable donations, private mortgage insurance, and higher education, experts say.
There weren't many changes with income-tax legislation in 2007, but there's always something going on in Washington – an odd twist here or a screwball trap there.Skip to next paragraph
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So it pays to, well, pay attention to what's new as the April 15 filing deadline draws closer. You might not have been reading yourself to sleep at night with fresh copies of changes to the Internal Revenue Code. But Barbara Weltman and Mark Steber were. They are, respectively, a contributing editor to JK Lasser's tax guides, and an expert on taxes at Jackson Hewitt Tax Service, and it's their job to stay on top of this sort of stuff.
Without further ado, here are seven tax tips they have that will help satisfy both you and the IRS:
1. Be careful with charitable contributions.
The government has really tightened up in this arena, which is one where folks could easily make mistakes and write in wrong amounts.
Now, the IRS requires that you be able to provide documentation for any contribution, regardless of how large or small.
"You can no longer take a deduction for the cash that you throw into the collection plate or Salvation Army bucket," says Ms. Weltman. If the contribution is under $250, she says, a canceled check will provide adequate evidence. More than that requires an acknowledgment from the charity. Charities are aware of this change, so this shouldn't be a problem.
2. Mortgage-insurance premiums now deductible.
If you buy a home and put down less than 20 percent of the purchase price, lenders typically require you to buy private mortgage insurance (PMI) to cover their bet. In past years, amounts paid on PMI were not tax deductible. But that changed in 2007, so if you bought a house last year, or refinanced, and paid PMI, then Weltman says you can deduct PMI premiums.
Sorry, folks, but this doesn't apply to mortgage transactions that occurred before 2007. As with most deductions, there is a phase-out of this tax break as income rises.
3. Troubled homeowners get a little mortgage forgiveness.
We've all read about the meltdown in the housing market. Some of us may have been stung by a foreclosure, or at least know someone in that situation. Here's where the Mortgage Forgiveness Debt Relief Act of 2007 enters the picture. Until it came along, when a lender forgave any of the debt owed to it on a home, that amount was treated as taxable income. But in legislation that President Bush signed on Dec. 20, that's no longer the case, at least with a primary residence and where less than $2 million is involved.
The president had this to say about the bill, as he signed it: "When your house is losing value and your family is under financial stress, the last thing you need is to be hit with higher taxes."