Retirement Savings Contribution Credit

[cprice72]

This is the first year that I have contributed to a Retirement Savings Plan and since tax season is around the corner does anyone know if any software like Turbo Tax or Tax Cut figures in the Retirement Savings Contribution Credit?

I really do not look forward to paying H&R or someone else a min of $100 just to figure in this credit!!!!

Thanks

 

[mlk_man]

Don't forget the excise tax credit this year also.

http://www.snopes.com/business/taxes/excise.asp

 

[mlk_man]

BTW, cprice, I sure hope you don't qualify for that RSCC...............:blink:

Credit for Retirement Savings Contributions

IRS Tax Tip 2006-49

If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be able to take a tax credit.

The Retirement Savings Contributions Credit applies to:
• Individuals with incomes up to $25,000 ($37,500 for a head of household) and married couples, filing jointly with incomes up to $50,000
• You must also be at least age 18, not a full-time student and you cannot be claimed as a dependent on another person’s return

You may be able to take the credit of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans.

The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.

When figuring this credit, you must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies for distributions starting two years before the year the credit is claimed and ending with the filing deadline for that tax return.

The Retirement Savings Contributions Credit is in addition to other tax benefits which may result from the retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a 401(k) plan are not subject to income tax until withdrawn from the plan.

For more information, review IRS Publication 590, Individual Retirement Arrangements and Form 8880, Credit for Qualified Retirement Savings Contributions which include the instructions. The publication and forms can be downloaded at IRS.gov or ordered by calling 1-800-TAX-FORM (1-800-829-3676).

 

[cprice72]

Yes mlk_man....I happen to be one of those poor persons coming up on my third deployment to the middle east, with a wife going to school full time and two children in daycare that I feel like I am paying a arm and leg for that falls below that married filing jointly 50,000 dollar mark. Do I get another credit for living in poverty???

 

[cprice72]

But hey....thanks for the excise tax tip...another 40 bucks for me!

 

[Birchtree]

Think about deducting all your sales taxes - utilities, cable, phone, if there is a sales tax you can deduct it. I kept all mine in a shoe box just in case they renewed the tax laws - they now apply for 2007 and 2008.

 

[cprice72]

From what I understand, the sales tax deduction is for residents of states who do not have a state tax, i.e. Tennessee, Texas, Washington and about 6 others states.

So here is a question for you. I am in the military and claim Tennessee as residency. Can I still claim the sales tax deduction since I am paying sales tax in the state of Kansas?

 

[atcsat64]

Think about deducting all your sales taxes - utilities, cable, phone, if there is a sales tax you can deduct it. I kept all mine in a shoe box just in case they renewed the tax laws - they now apply for 2007 and 2008.

Also kept mine in a shoe box, glad they carried it over 'cause will make a nice deduction! Don't forget sales tax for Home, car, boat, makes a big difference

 

[atcsat64]

From what I understand, the sales tax deduction is for residents of states who do not have a state tax, i.e. Tennessee, Texas, Washington and about 6 others states.

So here is a question for you. I am in the military and claim Tennessee as residency. Can I still claim the sales tax deduction since I am paying sales tax in the state of Kansas?

I just read from the IRS site and it doesn't mention that specifically, which means "loophole" in my book. 2006 instructions haven't been updated yet, it says to look at 2005 1040 itemized deductions instructions page 84: http://www.irs.gov/pub/irs-prior/i1040--2005.pdf

 

[GGal]

Actually, there is no loop hole. It's very simple. Any one filing a return who can itemize may elect to deduct sales tax instead of state income tax.

This is a benefit for people who live in states where there is no state income tax.

I think you would be hard pressed to find someone who is required to pay state income tax, whose sales tax deduction would be higher than the state tax deduction.

It's possible though. Let's say a self-employed person did not file his state tax return for 2005 in 2006, and he did not make any estimated state tax payments in 2006. He prepares his 2006 federal return, and is able to itemize because of large home loan interest. Since he did not pay any state income tax in 2006, he could take advantage of the sales tax deduction.

This and other examples would be rare, IMHO. As a general rule, it is the state income tax deduction along with the home interest that bumps you into being able to itemize.

GA

 

[Birchtree]

The wife and I have a habit of frequenting restaurants frequently - even Dairy Queen charges a sales tax. Look at all your bills - it's massive. It took me over three hours last year to itemize every payment. Someone said to me isn't that boring - I replied not when you pull out a dollar deduction everytime you reach into the box. Thank you George Bush. I stopped complaining everytime my wife brought home a $120 pair of shoes.

 

[GGal]

Birch, you have told on yourself! To make the kind of salary you've earned (in order to get that big ole TSP balance), for your sales tax deduction to be greater than your state income tax paid means only one thing.

What tax shelter are you involved in??? JK!

GA

 

[pyriel]

Actually, there is no loop hole. It's very simple. Any one filing a return who can itemize may elect to deduct sales tax instead of state income tax.

This is a benefit for people who live in states where there is no state income tax.

I think you would be hard pressed to find someone who is required to pay state income tax, whose sales tax deduction would be higher than the state tax deduction.

It's possible though. Let's say a self-employed person did not file his state tax return for 2005 in 2006, and he did not make any estimated state tax payments in 2006. He prepares his 2006 federal return, and is able to itemize because of large home loan interest. Since he did not pay any state income tax in 2006, he could take advantage of the sales tax deduction.

This and other examples would be rare, IMHO. As a general rule, it is the state income tax deduction along with the home interest that bumps you into being able to itemize.

GA

Great info... Would like to start tracking them here on Guam. We have no state tax here.... Oh I forgot, we are not even a state hehehhehhe....
P