3 New Tax Changes to Know Before You File

With April 15 looming, it’s time to think seriously about filling out your 2008 Form 1040. In January, we told you about five favorable changes that could affect your 2008 return. Here are a few more key changes to note.

Possible Delays for Forms 1099-B from Brokerage Firms:


If you sold securities from a taxable account in 2008, you may notice that your brokerage firm Form 1099-B is taking awhile to arrive. This form tells you (and the IRS) the amount of sales proceeds you collected last year from selling securities such as stocks, bonds, and mutual fund shares. In the past, brokers had to put Forms 1099-B in the mail by no later than Jan. 31. But a little-noticed provision in last year’s stimulus legislation extended the deadline to Feb. 15 for this year and beyond. This year’s deadline is actually Feb. 17, because the 15th is a Sunday and the 16th is President's Day. Once you finally receive your 1099-B, make sure the reported amount ties into the proceeds used to calculate your gains and losses on Schedule D.

More-Generous IRA Contribution Rules:

In previous years, your adjusted gross income (AGI) may have been too high to allow you to make deductible traditional IRA contributions or Roth IRA contributions. Things have changed for the better.

Traditional IRAs:

For 2008, you can contribute more to traditional IRAs than ever before, and you have a better chance of making a tax-saving deductible contribution.

For the 2008 tax year, you can contribute up to $5,000 to a traditional IRA, up from $4,000 for 2007. If you were age 50 or older on December 31, 2008, the contribution maximum is $6,000 (up from $5,000). If you’re married, the same contribution limits apply to your spouse if he or she wants to fund a separate IRA. The deadline for contributions for the 2008 tax year is April 15. So you still have time.

Here are the other traditional IRA contribution ground rules.

* Once you turn 70½, you can no longer contribute to a traditional IRA. However, Roth IRAs are still fair game.

* You (or, if you're married, you and your spouse), must have had 2008 earned income from salary or self-employment that at least equals the amount you contribute to IRAs for 2008. Note: Any alimony payments you received also count as earned income.

For those who were covered by retirement plans in 2008, the AGI restrictions on deductible contributions are considerably looser than just a few years ago. In each of the cases below, these AGI restrictions only affect your ability to make deductible contributions to traditional IRAs. (You can make nondeductible contributions to traditional IRAs no matter how high your income.) Here's the breakdown.

* If you’re unmarried, your eligibility to make a deductible 2008 contribution to a traditional IRA is phased out between AGI of $53,000 and $63,000.

* If you’re married and both you and your spouse were covered by retirement plans in 2008, your right to make deductible 2008 contributions to traditional IRAs is phased out between joint AGI of $85,000 and $105,000.

* If you’re married and only one spouse was covered by a retirement plan in 2008, the covered spouse’s eligibility to make a deductible 2008 contribution to a traditional IRA is phased out between joint AGI of $85,000 and $105,000. The noncovered spouse’s deductible contribution privilege is phased out between joint AGI of $159,000 and $169,000.

Roth IRAs:


The larger 2008 contribution limits for traditional IRAs (explained above) apply equally to Roth IRAs. After that, there are some important differences.

* If you’ve turned age 70½, you can no longer contribute to a traditional IRA, but you can still contribute to a Roth as long as you -- or you and your spouse if you’re married -- had earned income at least equal to what you contribute.

* The privilege of making Roth contributions for the 2008 tax year is phased out between AGI of $101,000 and $116,000 for unmarried taxpayers. For joint filers, the range is between $159,000 and $169,000. These ranges are considerably higher than just a few years ago.

* Being covered by a retirement plan (or not) has no impact on your eligibility to make Roth contributions.

Overall, for 2008, you have a better chance of being able to make the maximum Roth IRA contribution than ever before. Not only that, the maximum contribution amount is also larger than ever. The deadline to make a Roth contribution for the 2008 tax year is April 15.

New and Improved Alternative Minimum Tax Credit
As I explained in an earlier article (read the story here), you may be able to recover AMT amounts paid in prior years, thanks to liberalized AMT credit rules. If you’ve paid big AMT amounts in the past, this could be the single most important change for the 2008 tax year. To collect your rightful AMT credit, just complete Form 8801 (Credit for Prior-Year Minimum Tax) and attach it to your Form 1040.