ANOTHER CREDIT – FORM 8880

{Surprise! Surprise! Surprise! Bruce, THE TAX GUY, and I have decided to exchange our compatible/complimentary posts. So Bruce’s discussion of the Credit for Qualified Retirement Savings Contribution appears here at TWTP and my take on the topic appears at THE TAX GUY. rdf}

Here is the second post of a continuous feature of well-matched/like-minded post with Robert D. Flach, aka THE WONDERING TAX PRO. Be sure to go see his post today titled “Let Uncle Sam Subsidize Your Retirement Savings” which appears over at THE TAX GUY.

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As tax time starts its approach various articles on the web and in print publications detail tips on how to save on taxes. I believe that no taxpayer should have to pay a penny more in tax than they actually owe.

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One of the best parts about being a preparer is showing taxpayers new to them credits and deductions. Everyone’s face lights up when you show them something new and it makes them money (or they owe less in tax on their income – however you wanna look at it).

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A good example is Form 8880 Credit for Qualified Retirement Savings Contributions. Here an individual or couple is saving for retirement through a qualified plan and get a credit for it.

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(Note: Credits reduce your tax liability dollar for dollar.)

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Qualified lower and middle income taxpayers can benefit from this form. This nonrefundable credit applies to taxpayers who make retirement plan contributions.

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Meaning, if you make a contribution to a traditional IRA, or a Roth IRA, certain salary reduction contributions, or contributions to a plan, you may be able to claim a credit for a contribution. That is if your adjusted gross income is low enough.

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Okay some quick stats from the IRS:

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You may be able to take this credit if you, or your spouse if filing jointly, made -

· contributions (other than roll-over contributions) to a traditional or Roth IRA,
· elective deferrals to a 401(k), 403(b), governmental 457, SEP, or SIMPLE plan,
· voluntary employee contributions to a qualified retirement plan as defined in section 4974(c) (including the federal Thrift Savings Plan), or
· contributions to a 501(c)(18)(D) plan.

However, you cannot take the credit if either of the following –

· The amount on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 36, is more than $26,000 ($39,000 if head of household; $52,000 if married filing jointly).
· The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 1990, (b) is claimed as a dependent on someone else’s 2007 tax return, or (c) was a student.

Types of plans allowed -

· Traditional or Roth IRAs.
· 401(k), 403(b), governmental 457, 501(c)(18)(D), SEP, or SIMPLE plans.
· Distributions from your IRA (other than a Roth IRA) rolled over to your Roth IRA.
· Loans from a qualified employer plan treated as a distribution.
· Distributions of excess contributions or deferrals (and income allocable to such contributions or deferrals).
· Distributions of contributions made during a tax year and returned (with any income allocable to such contributions) on or before the due date (including extensions) for that tax year.
· Distributions of dividends paid on stock held by an employee stock ownership plan under section 404(k).
· Distributions from a military retirement plan.

If you qualify for this credit it is great, not to mention a great surprise if you didn’t know about it. If you read this and see you could have claimed in in 2007, 2006 and/or 2005 please see your tax professional and inquire about filing an amended return. But do the math - if the refund claimed on the 1040X is less than what your preparer is going to charge for the amended return it is not worth it. Also use this next year for your 2008 filing if you can.