Senior Housing and Assisted Living

A taxpayer may be able to take a tax credit of up to $1,000 (up to $2,000 if filing jointly) if he or she makes eligible contributions to an employer sponsored retirement plan or an IRA. This credit is a nonrefundable tax credit. A nonrefundable credit means that the credit cannot exceed the amount of the tax liability. This credit has also been known in the past as the saver’s credit. This credit is in addition to any IRA contribution or contributions made to a qualified plan made by the taxpayer.

Credit – The credit is computed based on the taxpayer’s filing status and adjusted gross income. The Internal Revenue Service provides a table that indicates an applicable percentage ranging from 10% to 50% to determine the amount of the credit.

Eligibility To be qualify for this credit, the following conditions must be met: (a) Taxpayer must have made a contribution to an IRA or qualified retirement savings plan. (b) Taxpayer must be at least 18 years of age as of December 31, 2009. (c) Taxpayer cannot be claimed as a dependent by someone else. (d) Taxpayer cannot be a full-time student. (e)Taxpayer had to be born prior to January 2, 1992. (f) The taxpayers adjusted gross income cannot exceed $27,750 if single, or $41,625 for a head of household or $55,500 if married filing jointly.

Limitations to the Credit – Usually distributions decrease eligible contributions. In this connection, contributions taken in determining the credit must be reduced by distributions received over a definite period of time, which the IRS considers as the “test period”. The current tax year, the following tax year up to the due date of the tax return including filed extensions, plus the two preceding tax years consist of the “test period”. Though, trustee to trustee transfers and rollover distributions do not offset the amount of the credit.In addition distributions from a military retirement plan do not reduce the credit.

How to Take the Credit You can take the credit on the form entitled “Credit for Qualified Retirement Savings Contributions” on Form 8880. You are entitled to the credit if you file Forms 1040 or 1040A. If you generally file Form 1040EZ then file Form 1040. The IRS permits you to file your 2009 tax return claiming an IRA contribution that will be made in 2010, in that case the IRS will consider that contribution providing it is made prior to the filing date of your tax return in the next year, 2010, as an allowable contribution when determining the amount of this credit. The amount of the retirement savings contribution credit claimed by you cannot be greater than your income tax liability less foreign tax credits plus alternative minimum tax liabilities.

Tax laws are complex, change constantly and each situation is unique. This article is not intended to provide legal or accounting advice. The reader should perform his or her own due diligence and consult competent professionals in this area.

Learn more about how we can help you determine if you are eligible for the retirement savings tax credit and other new IRS tax credits and about our competitively priced internet and paperless based system to tax preparation at affordable prices. Sandor(Sandy) E. Lenner,C.P.A. – M.B.A. has provided small business and accounting services for over 35 years and works part-time at his wife’s CPA firm .