Three Often Overlooked Tax Breaks

Trimming your tax bill puts money in your pocket, so don’t miss these frequently overlooked opportunities to save.

Retirement savers’ tax credit. You may earn two valuable tax breaks by contributing to a retirement-savings plan. Not only can you lower your taxable income by contributing to a 457, or build tax-free income when investing in a Roth, but you may also qualify for a tax credit just for contributing.

The savers’ credit is worth $1,000 if you contributed $2,000 to a traditional IRA, Roth IRA, 401(k), 457 or other retirement plan for 2008, and if your adjusted gross income was less than $16,000 if single or $32,000 if you’re married and file a joint return. Smaller credits are available until income passes $26,500 if single, or $53,000 if married.

Property-tax deductions. You generally need to itemize deductions in order to write off your property taxes. But non-itemizers—and that’s most of us—can add up to $500 (or $1,000 for married couples) paid in property taxes to their standard deduction amounts when filing their 2008 taxes.

Writing off state sales taxes. In 2008, you can choose between deducting state and local income taxes or state and local sales taxes. This option can be valuable if you live in a state that doesn’t impose an income tax or if you earned little income for the year. The deduction is based on your state and income level; the Internal Revenue Service Web site has a calculator to help you with the math.

If you have already filed and missed any of these breaks, you have up to three years to file an amended return and get back extra cash. See Form 1040X and its instructions at the IRS Web site.

ICMA-RC does not offer specific tax or legal advice. Please consult with your personal advisor for additional assistance prior to implementing any new tax or legal strategy.