But it's also an opportunity to do some tax planning and reduce your tax hit for 2008. According to current law, the cost of many benefits programs can be paid for with pre-tax dollars. For a person in the 28-percent federal income tax bracket, this means that you can buy $1000 worth of pre-tax benefits with money that would only be worth $720 after taxes. Your spending power is increased if you plan carefully.

In almost all companies, health and dental insurance programs are automatically paid for out of employees' pre-tax paychecks. But some employers also provide optional elections that can be paid for using pre-tax income:

• Flexible Spending Accounts - Set aside pre-tax dollars to pay for future health care costs, increasing your purchasing power.
  
  
• Retirement Benefits - Adjust your contributions of pre-tax dollars to your 401(k) or other qualified retirement program.
  
  
• Public Transportation Expenses - Pay for monthly fares or tokens used for daily travel.

In addition, new types of health insurance plans are being introduced into the marketplace. Health Savings Accounts allow you to set aside generous amounts of pre-tax income when combined with a high-deductible insurance plan. Unlike flexible spending accounts, though, these are not use-it-or-lose-it accounts. Be sure to investigate all the options available to you.

Don't wait - save taxes and buy more in '08!

Tax Guide 2008

Individual Retirement Accounts (IRAs)
If you don't participate in a company-sponsored qualified retirement plan, you can still take action to secure your financial future. The federal government allows you to set aside pre-tax dollars in a personal retirement fund that you control called an IRA.   For further details on how to take advantage of this tax break, please read Individual Retirement Accounts (IRAs).

Withdrawals/Distributions from an IRA
The federal government lets you accumulate your retirement savings on a pre-tax basis in order to maximize your returns. But there's no such thing as a free ride. . . forever. Eventually, you will tap those funds. And when you do, special tax rules apply.   For more on this subject, please review Withdrawals/Distributions from an IRA.

Annuities and Pension Plan Installment Payments
Some retired taxpayers receive a retirement pension or annuity, often paid in installments. But in most cases this retirement benefit does not escape taxation. In addition, quarterly tax payments may be due if withholding is not taken out of the monthly benefit.   For more on this topic, please review Annuities and Pension Plan Installment Payments.

Medical and Dental Expenses
No matter how much you plan, it is unlikely that you will be able to fully anticipate all of your medical expenses and pay for them with pre-tax dollars. So some expenses will come directly out of your pocket. The good news is that they are generally deductible on your income taxes; the bad news is certain conditions apply.   To continue learning more, please read Medical and Dental Expenses.

Tax News

Income Tax Refunds Delayed Due To Congress' Inaction over AMT Patch

Individuals who file their 2007 federal income tax returns as soon as they receive their Forms W-2 may be surprised to learn that their refunds will be delayed. The IRS is bracing for slow processing of returns early in the 2008 filing season because of Congress' delay in passing an alternative minimum tax (AMT) patch.    To find out more, please read Income Tax Refunds Delayed Due To Congress' Inaction over AMT Patch.

Is It a Business or a Hobby? Feds Consider Changing Tax Law

Tax officials carefully scrutinize many businesses to make sure their activities are truly for-profit, and therefore eligible for the tax rules that allow for writing off expenses and losses. But the IRS isn’t sure the rules are working, so eligibility may be tightened.    For more information on this important topic, please read Is It a Business or a Hobby? Feds Consider Changing Tax Law .

House Approves One-Year AMT Patch Legislation

The House of Representatives has passed an alternative minimum tax relief bill, temporarily curtailing a tax increase that was never supposed to be levied and permanently instituting a new tax to replace it. But the measure likely will never become law, leaving the Senate to start over and draft a bipartisan compromise, with only weeks until tax filing season begins.    For further details, please read House Approves One-Year AMT Patch Legislation.


Tax News Archive

For more stories and features on federal, state and payroll tax issues and how they may affect you, read the listing of articles in the archive.

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