Tax Matters

Tax Matters

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Tax Corner

If your child has earned income from a summer job, you may want to consider opening an IRA for him or her.  There is no minimum age for contributing to an IRA.  All that is required is that the person making the contribution has earned income and has not reached age 70½.

 

An “above-the-line” deduction is available for contributions to Heath Savings Accounts (HSAs).  IRS limits the deduction to the annual deductible on the qualifying high deductible health plan, but not more than $2,600 ($5,150, if family coverage).  These limits are $500 higher if the taxpayer is age 55 or older ($500 each if both spouses are 55 or older).  You cannot contribute to an HSA starting the first month you are enrolled in Medicare.

 

For 2005, educators may still deduct up to $250 of expenses paid for purchases of books and classroom supplies as an adjustment to gross income.  After this year, the deduction expires unless a change in the law extends it.

 

In 2005, you may earn up to $12,000 per year ($1,000 per month) before any of your Social Security benefits are reduced, provided you are under the full retirement age.  In the year you reach the full retirement age, you may earn up to $31,800 annually ($2,650 per month).  The full retirement age is 65 years and 4 months if you were born in 1939, and age 65 and 6 months if you were born in 1940.  There is no limit on earnings beginning the month you reach full retirement age.

 

For 2005, you may contribute up to $4,000 to your ROTH or Traditional IRA.  This amount remains at $4,000 for 2006 and 2007, and increases to $5,000 starting in 2008.  If you will be at least 50 years old before the end of this year, you may make additional “catch-up” contributions of $500 to your Traditional IRA and ROTH IRAs.  This amount will increase to $1,000 starting in 2006.  The contribution limits apply to all your IRAs as a whole, not separately.  You can contribute any amount to any IRA, provided the limits are not exceeded.

 

Costs incurred for sending your child to day camp this summer may qualify for a tax credit.  Parents, who incur costs for childcare to enable them to work, or look for work, may be eligible for a tax credit.  This includes costs for day camp.  The costs for overnight camp are not eligible for this credit.

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