Taxable Income

You likely haven't filed your 2007 tax return, but it's not too early to take note of changes for 2008. Capital gains tax will disappear for some, while the youngest investors might be in for a tax shock. Workers will be able to salt away more for retirement. And if your home is being reassessed this year, don't forget to file for Maryland's homestead credit. Stay tuned, too. The emergency stimulus package to prop up the economy could bring on more tax breaks soon. Here are some changes we know about so far: Zero capital gains taxes.

A chance remark on a column about year-round tax savings has prompted a few skeptical, if not downright cynical, responses. I mentioned that my wife, Georgina, and I are in the 15 percent tax bracket, the second-lowest (brackets range from 10 percent to 35 percent). Many readers wanted to know how that could be, thinking we are resorting to tax trickery. "Hmm, let's see," began one e-mail. "You and your wife stash away lots in your pension plan and write off many expenses since you are self-employed.

Tax increases aimed at Maryland households making more than $200,000 will: A. Hurt middle-class families already squeezed by big mortgages and high energy prices. B. Affect only upper-income families who can more easily afford a bigger government contribution. Which one you believe probably determines what you think of Gov. Martin O'Malley's plan for Maryland's biggest income-tax change in a decade. In fact, the answer is Both of the Above, which blares messages about social class, how we see ourselves and the pros and cons of O'Malley's proposal.

To fix Maryland's budget, Gov. Martin O'Malley has proposed the most complicated fiscal plan Marylanders have seen in at least 15 years, with some taxes going up, others going down, and some doing both at the same time. Now taxpayers and business owners across the state are trying to figure out: What does it mean for me? O'Malley says that even though he would raise $2 billion in revenue, most people would pay less. Republicans say everyone would pay more. Tax experts are divided on the question, and a lot of average Marylanders say they're just not sure.

My daughter, Veronica, a director of curriculum development, is excited about a major freelance project that she will do in addition to her regular job. It will mean more money but, she also realizes, more taxes, including possibly having to make quarterly estimated payments. Ultimately, that might be the biggest long-range financial benefit of her additional work, the incentive for careful tax planning all year. It is something few Americans do, although it could save them hundreds if not thousands of dollars with little effort.

Editors note: Every Tuesday through the end of tax season, The Sun will run an edited transcript of Baltimoresun.com's weekly tax-advice column featuring three experts from the Hunt Valley accounting firm SC&H Group. I'm a sports official and work as an independent contractor. When I leave my house to work a game, can I deduct the mileage from my house? Are there any other things I may be able to deduct, such as a uniform, shoes, etc.? - Bob, Baltimore Independent contractors are considered to be engaged in a trade or business, and are entitled to deduct all ordinary and necessary expenses paid or incurred in carrying on their trade or business.

The ever-expanding stacks of old books that my wife, Georgina, and I want to give to our public library are crowding our home office space. We are itching to clean out the bedroom closets, too, and donate clothes we haven't worn for years to our church thrift shop. But we'll put up with the clutter until after Dec. 31. Likewise, we won't do anything until January with the property tax bill that came in the mail recently. We are not always this patient, though. We are buying printing paper, envelopes and labels for our freelance work now, even if our current supply will last until February.

Older Americans can give portions of their retirement funds to charity and collect some nice tax breaks in return, but they'll have to act fast. Under legislation signed into law this year, individual retirement account holders older than 70 1/2 can withdraw in 2006 and 2007 up to $100,000 from the accounts tax-free if it goes to charitable organizations. And while the money is excluded from taxable income and thus not eligible to be deducted again on tax returns, it does count toward the account owner's required minimum distribution for IRA withdrawals.

I read your article on the elimination of long-term capital-gains taxes for lower-bracket taxpayers from 2008 through 2010. My plan is to make withdrawals from my deductible IRA those three years to take advantage of this law. Do you agree? Sorry, but withdrawals from IRAs do not qualify for this tax break. Such withdrawals are considered ordinary income and not capital gains, even if the account has gains from the sale of securities such as stocks, bonds or mutual funds. The money withdrawn would be taxed at your tax bracket, the same as other ordinary income such as pay from work, plus generally a 10 percent penalty if you are under 59 1/2 . Likewise, withdrawals from other tax-deferred accounts such as 401(k)

Baltimoresun.com's tax advice column features three experts from the Hunt Valley accounting firm SC&H Group answering questions about preparing your return. Here is an edited excerpt of this week's column: Can I deduct losses on my house destroyed by a fire during 2005, although I have not yet settled with the insurance company as of Dec. 31, 2005? - Bernie, Brooklyn, N.Y. Generally, you can deduct a casualty loss only in the tax year in which the casualty occurred. To determine your deduction for a casualty or theft loss, you must first figure your loss.