Winter 2007 Volume XVII, No. 2 Newsletter

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Winter Notes:

winterI am pleased that so many individuals and business owners have visited with us this season to take advantage of year-end tax planning opportunities. This enables us to get an early look at projected income, expenses, and tax credits, while providing helpful year-end advice. For those of you who came in it was certainly time well spent - for those of you who have not yet visited, there is still time to make an appointment. As we head into what promises to be a busy and productive season, I’d like to thank everyone for the many client referrals during the summer and fall. They are very much appreciated!

Alternative Minimum Tax (AMT) remains a particular concern to us because so many clients are exposed to it. For 2007 there is a decrease in the AMT exemption amount - this means that even more middle income families will be facing AMT until Congress decides to fix or repeal it. We will continue to monitor the situation and report back our findings to you.

2008 Tax Overview - Key Changes:

  • The value of each personal and dependency exemption will be $3,500, an increase of $100 from 2007.
  • The new standard deduction is $10,900 for married couples (up $200), $5,450 for singles (up $100), and $8,000 for heads of household (up $150).
  • The maximum Hope education credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.
  • Participants in most employer-sponsored 401(k) plans and 403(b) plans can contribute up to $15,500, unchanged from 2007. Individuals, age 50 or over, can make an additional catch-up contribution of up to $5,000, also unchanged from 2007.
  • Individuals participating in SIMPLE retirement plans can contribute $10,500, unchanged from 2007. Those age 50 or over, can make an additional catch-up contribution of up to $2,500, also unchanged from 2007.
  • The annual contribution limit for most defined contribution plans, including SEP’s, rises to $46,000, up from $45,000 in 2007.
  • Premiums paid for qualified mortgage insurance during 2007 in connection with home acquisition debt on a qualified home are deductible as an itemized deduction (new).
  • The Social Security wage base rises to $102,000 (from $97,500).

Your Credit Report:

Q: I have excellent credit and am routinely offered more credit on my cards than I need. However, when I tried to get a new credit card, I was turned down. The explanation stated that the credit reporting bureau had found a problem. I have a very common name, and it has happened before that the three credit bureaus, Equifax, Experian and Transunion have confused me with someone else. Each time, the person had the same name but if the credit bureau had bothered to check, it would have seen different addresses, dates of birth, and Social Security numbers. What can I do?

A: Get a copies of your credit report from each of the three bureaus and go over them carefully for errors; one quarter of all credit reports contain incorrect information. Everyone is entitled to one free report from each of the three credit reporting bureaus every 12 months. Call toll-free, 877-322-8228, or visit www.annualcreditreport.com and be prepared to provide your Social Security number. Please note that other websites may offer free credit reports, but, in order to get them, you have to purchase your credit score or some other unwanted service.

I used www.annualcreditreport.com and was astounded as to how much information was contained therein. It was simple to use and completely free of charge.

Tax Planning Corner

Child and Education Tax Breaks:

Child Tax Credit - The Child Tax Credit allows you to reduce your federal income tax by $1,000 for each qualifying child under the age of 17. This credit begins to phase out if your adjusted gross income (AGI) is above $110,000 for joint filers, or $75,000 for single or head of household filers.

Dependent Care Credit - Parents who must pay for the care of a dependent under age 13 in order to work may be eligible for a tax credit of between 20 and 35 percent of qualifying expenses. For 2007, the maximum amount of expenses on which the credit can be claimed is $3,000 for the care of one dependent, or $6,000 for two or more.

Education Tax Credits - Two popular credits can help defray higher education costs. The Hope Credit, up to $1,650 for every qualifying student, is available for each of the first two years of college. A Lifetime Learning Credit of up to $2,000 per year is available for undergraduate, graduate and professional degree courses. Both credits are phased out as AGI increases from $94,000 to $114,000 (joint), and from $47,000 to $57,000 (single).

529 Plans - 529 Plans give parents and other relatives a tax-advantaged way to save money for higher education expenses. While no deduction is available for contributions, funds in the account grow tax-free and withdrawals are also tax-free if they are used to pay qualified college expenses. Congress recently eliminated any uncertainty regarding 529 plans - some provisions which were to expire in 2010 were extended permanently.

Common Tax Deductions:

  • Student Loan Interest
  • Higher Education Tuition
  • Penalty for early Withdrawal of Savings
  • Alimony
  • Charitable Contributions - Cash & Non-Cash
  • State & Local Income Taxes and Property Taxes
  • Points Paid for Mortgage or Refinancing
  • Job Search Expenses
  • Investment Expenses
  • Unreimbursed Employee Business Expenses

Three Local Trips for Under $8:

Great Falls Park in McLean offers more than 15 miles of trails and easily accessible lookouts near the Visitors Center. The entrance is off Old Dominion Drive near the intersection with Old Georgetown Pike and 495. Watch as the Potomac River’s waters rush through the Mather Gorge. Info

The Robert Johnson IMAX Theatre, located at the National Museum of Natural History, shows stunning IMAX films in 3D projected unto a three-story screen eleven times a day. Extra bonus: The Jazz Cafe located adjacent to the theatre is one of D.C.’s best happy hours. Info

The best place to view Washington is from the top of the Washington Monument. Be sure to pick up tickets in advance for $1 at www.nps.gov Don’t worry about the steps - elevators now take you to the top.

Closing:

Developing great people in a strong culture is very important to me. This culture empowers each of our associates to be a leader, to take initiative, accept challenges and achieve goals. The spirit, expertise and permanence of our people are the distinguishing characteristics of the practice. I am proud of our team - Ellen, Jeff, Scott and Marilee have an average experience of eighteen years in public accounting.

We wish everyone a happy holiday season and look forward to seeing each of you very soon.

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Matthew R. Horowitz, C.P.A.
(410) 312-7622 • email
10015 Old Columbia Rd. Suite B-215, Columbia, Maryland 21046