Finances & Advice Getting what’s coming to you

Getting what’s coming to you


At tax time every little bit helps, especially when it comes to lowering liability. Failing to scrutinize several often overlooked areas could be costing taxpayers money when it comes to filing a return.

Avoiding or reducing tax on Social Security benefits is one way baby boomers in particular can save money. AARP reports that up to 85 percent of Social Security benefits may be considered taxable income depending on filing status, state of residence and total income. But there is a strategy that can help to reduce the burden.

Transferring funds invested in a Certificate of Deposit account (CD) to an annuity can make a difference, according to Joyce Stobo of Kennebunk, an H&R Block representative for the past 21 years. Stobo is also an enrolled agent, authorized by the U.S. Department of the Treasury to represent taxpayers before the Internal Revenue Service.

“Tax on Social Security is based on what you receive for benefits and other income,” said Stobo. “Simply put, if you have more than $25,000 in other income it’s taxed. Annuity income, on the other hand, is not taxed until you take a withdrawal, so if you have other investments generating income and move that to an annuity, the annuity is not reported on the tax return. In turn, the Social Security income is not taxed or the tax is reduced.”

To explore annuity options, Stobo recommends that individuals consult with an investment adviser and make sure to include qualified expenses related to investing in deductions filed on the tax return.

According to Charles Schwab & Co., Inc., an investment services and products firm, qualified expenses can include fees for investment counsel and advice, including subscriptions to financial publications, software or online services you use to manage your investments, and transportation to your broker’s or investment adviser’s office.

Stobo suggests that taxpayers consider using the services of a professional when preparing a return.

“Best reason to use a tax pro? Planning,” said Stobo. “The IRS offers precious little to older citizens. They’ve increased the medical ratio from 7.5 to 10 percent of adjusted gross, making it harder to take medical expenses. (When filing) it’s important not to overlook the total cost of prescriptions, available from your pharmacy.”

Stobo said another way to save money and possibly increase the refund amount is to carefully track charitable contributions and donations.

“And don’t forget your mileage as a volunteer,” said Stobo.

Low- and moderate-income boomers who are still working can also take advantage of a “Saver’s Credit” in 2014 and in years ahead, according to the Internal Revenue Service.

Also known as the retirement savings contributions credit, this credit offsets part of the first $2,000 voluntarily contributed to IRAs and 401(k) plans and similar workplace retirement programs. The credit is available in addition to any other tax savings that apply.

Workers who are eligible still have time to make qualifying retirement contributions and get the credit on their 2014 tax return. Filers have until April 15, 2015, to set up an individual retirement arrangement or put money into an existing IRA for 2014. The IRS encourages those unable to set aside money for this year to schedule 2015 contributions soon so employers can begin withholding them.

According to the IRS, the saver’s credit can be claimed by:

•Married couples filing jointly with incomes up to $60,000 in 2014 or $61,000 in 2015;

•Heads of household with incomes up to $45,000 in 2014 or $45,750 in 2015;

•Married individuals filing separately and singles with incomes up to $30,000 in 2014 or $30,500 in 2015.

As with other types of tax credits, the saver’s credit can increase the amount of a refund, or it can reduce the amount owed in taxes for the year being filed. Credit amount will be based on filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit. The form provides detailed instructions on figuring the credit correctly.

According to the IRS, the saver’s credit “supplements other tax benefits available to people who set money aside for retirement.” For example contributions to 401(k) and similar workplace plans are not, generally speaking, taxed until withdrawn.

Other rules do apply for saver’s credit eligibility: taxpayers must be at least 18 years of age; anyone claimed as a dependent on someone else’s return cannot take the credit; students cannot take the credit. The IRS considers anyone enrolled as a full-time student during any part of five calendar months during the year a student.

Stobo suggests that a good way to stay on top of special tax credits and the latest IRS programs is by subscribing to “IRS Tax Tips,” an email newsletter. It offers brief, easy-to-read tips each business day during the tax-filing season and three times a week during the summer months. Special editions are also issued periodically throughout the year to highlight important topics. For more information or to subscribe, see

Faith Gillman is a staff writer at Current Publishing.

Joyce Stobo has been a tax professional with H&R Block for more than two decades. She is also an enrolled agent with the U.S. Department of the Treasury, which permits her to represent taxpayers before the Internal Revenue Service.Staff photo by Faith Gillman


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