EDWARD JONES: FINANCIAL FOCUS
Be prepared for tax filing day
Contributed by Scott Shanks

Shanks

April 15, the tax-filing deadline, may seem like a long way off. But you don't want it to sneak up on you. So, you might want to borrow a page from the Boy Scout Handbook and "Be Prepared."

And one of the best ways you can prepare yourself is to become familiar with "what's new." Some elements of the tax laws change almost every year - and 2007 was no exception. So, as you start thinking about your taxes, you'll want to stay current on those changes that may affect you, such as the rules governing the "kiddie tax."

As you may know, the kiddie tax is a set of rules governing the tax treatment of children's investment income. In 2007, the first $850 of a child's unearned investment income is tax-free and the next $850 is taxed at the child's rate, which is typically 10 percent. Any unearned investment income in excess of $1,700 will be taxed at your rate. (This figure will be indexed for inflation in upcoming years.)

Previously, these rules applied only to children younger than 14. This year, the kiddie tax affects children younger than 18 - and starting in 2008, it applies to dependents younger than 19 and dependent full-time students younger than 24.

Consequently, if your children are between 18 and 23, you might want to sell some of the assets held in their names before the year ends, thereby allowing you to take advantage of the lowest capital gains rate - which is 5 percent, assuming your children are in the 10 percent tax bracket - applied to the sale of investments held more than one year. If you wait until 2008 before selling these assets, some of your children's investment income could be taxed at your capital gains rate of 15 percent. Before selling these assets, though, see your tax advisor.

Another tax law change - one that expires this year -is related to charitable giving. If you are 70- 1/2, you are required to take distributions from your traditional IRA. But for 2007, you can transfer up to $100,000 per year directly from your IRA to a charity, without paying income taxes on the money. However, if you take advantage of this provision, you can't get a "double" tax break by writing off the contribution as a charitable deduction. Consult with your tax advisor before making this transfer.

Apart from familiarizing yourself with recent tax law changes, what other moves might you want to make before the tax season comes to a close? Here are a couple of ideas to consider:

Contribute to an IRA. You can put money in to your IRA for the 2007 tax year right up until the tax-filing deadline. If you don't already have a traditional or Roth IRA, you've also got until the filing deadline to open one for the 2007 tax year.

Check for all available deductions and credits. Meet with your tax advisor to make sure you're taking advantage of all the deductions and credits you can claim.

Finally, don't wait until the last second before filing taxes. You can help achieve a more favorable outcome if you give yourself adequate time to prepare, plan and avoid mistakes.