New Year Tax Savings and the New AMT Law: Virginia CPAs Offer Tips

As we start the New Year, now is the perfect time to begin basic steps to prepare for the April tax deadline. The Virginia Society of CPAs (VSCPA) suggests the following five steps to prepare.

Step 1: Find out if you fall within Alternative Minimum Tax (AMT) potential.

In December 2007, President Bush signed into law the Tax Increase Prevention Act of 2007 increasing the Alternative Minimum Tax (AMT) exemption amounts to $66,250 for married taxpayers and $44,350 for unmarried taxpayers (up from $62,550 and $42,500 respectively in 2006). The Act also extends AMT relief to nonrefundable personal credits for 2007.

This Act will prevent 19 million individual taxpayers from being subject to the AMT and reduce some of the burden on the 4.2 million who would still pay the AMT in 2007. Without the patch, the exemption would have dropped to $45,000 for married taxpayers and $33,750 for singles.

The AMT parallels the regular income tax. However, different rates apply, as do different definitions, deductions, exemptions and credits. Taxpayers calculate taxes the AMT way and the regular way and pay the higher amount. The highest AMT rate is 28 percent. The highest regular income tax rate is 35 percent.

To find out if you are subject to AMT in 2007, use the AMT worksheet that appears in the 2007 Form 1040 instructions, available online at www.IRS.gov.  

Step 2: Take advantage of higher Individual Retirement Account (IRA) limits.

You'll be able to save an extra $1,000 in your Individual Retirement Account (IRA) in 2008, when the contribution limits rise to $5,000 (you can contribute $6,000 for the year if you're 50 or older in 2008). Make it easy by signing up to have your contributions deducted from your bank account every month — $416 per month will get you to the $5,000 maximum by the end of the year.

Have some extra cash now? You still have until April 15, 2008, to make your $4,000 IRA contribution for 2007 — where a holiday gift or year-end bonus can grow substantially through the years.

To find out more about IRAs and other retirement tools the CPA profession has created free resources on this topic available at www.360financialliteracy.org/Life+Stages/Retirement. Consumers can also visit www.FinancialFitness.org, a Web site created by Virginia CPAs, for financial articles on this topic.

Step 3: Start gathering your tax records now.

You wouldn't want to miss out on valuable deductions because you're scrambling around at the last minute. Track down your tax records for an idea of what documents and receipts you will need, and start sorting them into folders.

Step 4: Document your charitable contributions.

If you donate to charity, including cash donations (regardless of the amount), you'll need proof. This means you'll have to gather canceled checks, bank records or receipts. If you plan on donating to charity in the 2008, consider using a credit card. This way you'll have an automatic receipt.

Step 5: Do additional research.

The CPA profession launched 360 Degrees of Financial Literacy to address the alarming deficiency in Americans’ understanding of how financial issues affect them at different stages of their lives. This information is free and offers key strategies, tools, research and articles that can help you as you better manage your personal finances and save for retirement. Visit www.360financialliteracy.org for more information.

Virginia CPAs launched the Financial Fitness program to help improve the financial health of citizens in the Commonwealth. An award-winning campaign, Financial Fitness offers numerous resources for Virginians including a consumer Web site (www.FinancialFitness.org) to serve as a clearinghouse of financial resources; a 12-month Financial Fitness Wall Calendar loaded with year-round financial advice; free consumer workshops, led by CPA experts, to educate on money management topics; a Speakers Bureau that provides CPAs for free to speak on financial topics and educate their communities; and more! Visit www.FinancialFitness.org for more information.

ATTENTION NEWS MEDIA: CPAs are available for interview on any financial topic. Please contact VSCPA Media & Public Relations Specialist Shawnte Reynolds at sreynolds@vscpa.com or (800) 733-8272 to set up an interview with a CPA in your geographic region.

The Virginia Society of Certified Public Accountants (VSCPA) is the leading professional association dedicated to enhancing the success of CPAs. Founded in 1909, the VSCPA has approximately 8,300 members who work in public accounting, industry, government and education. For more information, please visit the Press Room on the VSCPA Web site at www.vscpa.com, e-mail vscpa@vscpa.com or call (800) 733-8272. To search for a CPA in your geographic region, visit www.FinancialFitness.org and click on “Find a CPA.”