Don’t Miss These Tax Breaks, Part 2

Here’s the second installment of tax breaks that you don’t want to miss…

Didn’t make much last year? Take advantage of the saver’s credit.
Low-income taxpayers may receive a credit (a dollar-for-dollar reduction of the taxes they owe) for 50 percent of their contributions up to $2,000 to qualified retirement savings plans such as 401(k)s, 403(b)s as well as IRAs.

If you qualify (AGI of less than $25K for individuals, $50K for couples), this is a great savings incentive. You’ll not only reduced your tax burden by contributing to a taax-deductible account, but you’ll also end up earning a credit that will further reduce your tax bill. Also keep in mind that you can make 2005 IRA contributions all the way up to April 15th, 2006.

You don’t need gains to make the most of your losses.
Many investors know they can use their stock losses to offset the taxes they owe on their stock gains in a given tax year. If the losses exceed the gains they can use up to $3,000 in losses to offset ordinary income.

But you don’t have to have gains to write off losses up to $3,000 of income if you had a holding that became worthless in 2005.

I’m pleased to report that this one won’t be of any use to our family, as we didn’t have any investments that became worthless in 2005. But if you did, this could help soften the blow.

See also: Tax Breaks, Part 1 and Tax Breaks, Part 3

[Source: CNN/Money]