Making
YOUR MONEY COUNT

As the countdown to Tax Day continues and taxpayers shuffle through their financial papers, these questions may come to mind. The national tax preparation firm of H&R Block offers these tips to help you complete your tax return.

How much can I contribute to my IRA (Individual Retirement Account)?

Each year you may contribute up to $2,000 to your IRA ($2,250 to a spousal IRA) assuming that you have earned that much during the year. If you're not a participant in a qualified retirement plan where you work, you can deduct your entire contribution.

If you (or your spouse if you are married and living with your spouse) participate in a retirement plan where you work, your deduction may be limited or eliminated, depending on your income level. Contributions are:

• Fully deductible for individuals with adjusted gross incomes of less than $25,000 (or $40,000 married filing jointly (MFJ)).

• Partially deductible for individuals with adjusted gross incomes between $25,000 and $35,000 ($40,000 and $50,000 MFJ).

• Nondeductible for individuals with adjusted gross incomes of more than $35,000 ($50.000 MFJ).

The earnings on your IRA account are tax deferred regardless of whether you're eligible to deduct your contribution. You may contribute to your 1995 IRA until April 15,1996.

May married people file Form 1040EZ?

Married taxpayers who file jointly may use Form 1040EZ. Form 1040EZ is the simplest tax form, though its simplicity means that only limited tax benefits can be claimed. It may be used if all of the following apply to you:

• You are using the single status or married joint filing status;

• You (and your spouse, if you are married filing a joint return) are under age 65 and not blind:

• You are claiming no dependents; and

• Your taxable income is less than $50,000, including no more than $400 in interest and the balance in wages, taxable scholarships and fellowships, and unemployment compensation. Just because you are allowed to file a shorter form does not mean that it is the most advantageous. You will be better served by filing 1040A or 1040 form, for example, if you are eligible for certain deductions and/or credits that can't be claimed on the 1040EZ.

Because your situation may change from year to year, always check to be sure that you are using the form that most clearly suits your current tax situation.

What tax breaks are available for older taxpayers?

Older Americans enjoy a number of tax breaks. For one thing, certain forms of retirement income may be tax free. Depending on the retirement plan, the portion of a pension that represents a recovery of the taxpayer's contributions may be tax free. Social Security benefits are also nontaxable for many retirees. For others, up to 85 percent of these benefits may be taxable in 1995 depending on the amount of other income reported on their income tax returns.

Taxpayers age 55 or older may qualify to exclude from income tax the first $125,000 ($62,000 if married and filing separately) of gain realized on the sales of their personal residences.

Taxpayers age 65 or older get an extra standard deduction of $950, or $750 if married or a qualifying widow(er). Also, if you or your spouse is age 65 or older, the credit for the elderly may save you as much as $ 1,125, depending on your circumstances.

What is the earned income credit and how do I qualify for it?

The earned income credit is designed to help lower-income working Americans. In recent years the credit has been increased and the requirements for claiming it have changed too.

You may qualify for the earned income credit if you had some earned income and your adjusted gross income and earned income for 1995 were less than the following amounts:

• $24,396 and you had one qualifying child; or

• $26,673 and you had two or more qualifying children; or

• $9,230 and you had no qualifying children. To qualify, you and your qualifying child(ren) must have lived in the United States for more than six months. Additional requirements may apply.

The amount of your credit is treated as a payment of tax that will provide you with a larger refund or reduce the amount of tax you would otherwise owe.

What expenses can I deduct on my income tax return?

You can deduct or take a tax credit for several hundred expenses including:

• medical insurance premiums.

• out-of-pocket expenses while doing charitable volunteer work.

• expenses for collecting taxable income.

• work-related educational expenses.

• job-seeking expenses within the same occupation.

• costs of making your business accessible to the disabled.

• investments in low-income housing.

• work-related child care expenses.

• expenses relating to hobby income.

• losses from bad debts.

These are just a few expenses that provide potential tax relief— the list goes on.

20 ILLINOIS COUNTRY LIVING • FEBRUARY 1996