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You can use your 2007 or 2008 tax return to maximize your rebate

The tax rebates Congress is sending our way this summer provide tax planning opportunities at the top and the bottom of the income scale.

By Helen Huntley, Times Personal Finance Editor
Published February 17, 2008

The tax rebates Congress is sending our way this summer provide tax planning opportunities at the top and the bottom of the income scale.

At the top end, RIA tax analyst Bob Scharin says those who made too much money in 2007 to qualify for the rebate might try reducing their 2008 income to qualify. At the bottom end, low-income workers, Social Security recipients and disabled veterans who had at least $3,000 in income must file a 2007 return to receive a rebate. And some of them might be able to increase their income in 2008 to qualify for a larger rebate.

Here's why these strategies might work: The rebates that will start being mailed out in May will be based on what you report on your 2007 return. However, if you would be entitled to a larger rebate based on your 2008 return, you'll be able to collect the difference next year. Essentially you get to use whichever tax year gives you the larger rebate.

The rebates are phased out starting at incomes of $75,000 single and $150,000 (married filing jointly). If you lose all or part of your refund this year, you might reduce your income for next year by increasing your retirement savings plan contribution, taking a capital loss or deferring a bonus.

If your income was too low to qualify for the maximum rebate this year, you might increase it next year by working more hours, realizing capital gains, taking IRA distributions or converting a traditional IRA to a Roth IRA.

Everyone with at least $3,000 in income from work, Social Security and/or veterans disability benefits will be entitled to a minimum rebate of $300. But they must file a return to get it.

Free electronic filing is available at www.irs.gov for those with incomes of less than $54,000.

Although distribution of the rebates won't begin until May, some people walked into tax preparers' offices trying to collect the money even before Congress agreed on how much to distribute.

"We've lost customers over that," said John Hewitt, founder of Liberty Tax Service. "They grab their papers and walk out."

Helen Huntley can be reached at hhuntley@sptimes.com or (727) 893-8230.

[Last modified February 15, 2008, 19:46:53]