Last Minute Income Tax Tips

You’ve run a few preliminary calculations. Maybe you’ve even gone all the way through the process with some income tax software.

It looks like you’ll have to haul out your checkbook to pay Uncle Sam this year.

But wait a minute. There might still be some tax breaks you haven’t explored.

1. IRA contribution: Consider taking advantage of a tax-deductible IRA up until the minute you file your 2007 income tax return. Most people can tuck away up to $4,000 this year, but if you’re at least 50 years old, you can contribute up to $5,000. What’s new for 2007: you can earn more than you could for 2006 and still be eligible to deduct an IRA contribution, according to Mary Beth Franklin of Kiplinger’s Personal Finance.

Franklin says you can deduct some or all of your IRA contributions if you and your spouse had joint income of $103,000 or less. For singles, the magic number is $62,000. These numbers apply even if you participate in an employer’s retirement plan. And if your better half does participate but you don’t, you will be able to deduct at least a portion of your IRA contributions provided your joint income doesn’t push past $166,000 for 2007.

2. Retirement savers tax credit: This one will help you trim your tax bill or boost your refund if you’re a young workers or a retiree who has opted to work on a part-time basis. It’s a permanent tax credit good for up to $1,000 when you sock away $2,000 in a traditional or a Roth IRA, a 401(k) or a retirement plan offered by your employer.

To take advantage, you must be at least 18 and not considered a student. You also cannot be someone else’s dependent. If single, you must earn $26,000 or less. Heads of household can quality with an income of no more than $39,000. Married couples filing jointly are eligible if their total income doesn’t exceed $52,000 for 2007.

3. Charitable IRA distribution: This one applies if you’re a retiree who donated at least a portion of last year’s IRA distribution to charity. You may then omit the amount of your donation from your 2007 adjusted gross income (AGI). While you can’t double dip and also claim the contribution as a charitable contribution, the resulting lower AGI could reduce any taxes due on your Social Security benefits.

By lowering your income, it could also make you eligible for other tax breaks, such as medical expenses, where eligibility is keyed to a percentage of your AGI. Franklin also reminds filers to include any Medicare Part D premiums for prescription drug coverage when calculating your medical expenses for last year.