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Friday, October 4, 2013

How to claim the retirement savings tax credit


Tax payers can lower taxable income via contributions to retirement accounts
Retirement contributions lower taxable income
Tax credits help lower money owed to the Internal Revenue Service (IRS) and assist with retirement planning. The retirement savings contribution credit is one of several tax credits that enable tax payers to reduce their taxes via contributions to a retirement account such as an Individual Retirement Accounts (IRAs) and 401(k) accounts.

Being properly aware of what tax credits you qualify for is essential to keeping your taxes to a minimum in addition to accurately recording financial activities to the IRS. The retirement savings contribution credit is the governments way of helping tax filers prepare for retirement while also benefitting in the near term through tax breaks.

Regulation of the retirement savings contribution tax credit is set forth in Section25B of the Internal Revenue Code (IRC). The credit and the IRC are governed by The Job Creation and Woker Assistance Act of 2002 also known as PublicationL. 107-147 Statutory details regarding the retirement contribution tax credit are outlined within Title 26, Subtitle A, Chapter 1, Sub-chapter A, Part IV, Sub-part A, Section 25B of the U.S. Code.

Qualification


To determine whether or not you qualify for the savings tax credit review the Internal Revenue Service (IRS) Form 8880. This form provides information on who can use the credit in terms of which types of savings accounts qualify, income limitations and filing status. Claiming a retirment savings tax credit is not necessarily allowable if a retirement contribution deduction is being made to taxable income.

Gather financial documents


Knowing how much credit to take, and justifying the credit to the IRS requires proper documentation of the qualifying retirement contribution. The IRS Form 5498 is a document used to record and report retirement contributions to the IRS and contributor(s). Be sure to not exceed any credit maximums to avoid being flagged for an audit.

Complete IRS Form 8880 


IRS Form 8880 is the means by which you demonstrate your intent to claim the retirement savings contributions credit. This form includes savings contributions amounts for both single and married tax filers. Early distributions from retirement savings may reduce the amount of tax credit claimed unless they are directly rolled over between financial institution custodial accounts.

Record credit on 1040 


Once the IRS Form 8880 is complete the tax credit due should be on the last line of the form. This value is transferred over to the applicable IRS Form1040. Since there are different Form 1040's and they can change from year to year, the line on which the retirement contribution tax credit is reported varies. If in doubt about any of the tax filing procedures or to optimize tax filing returns, contact the IRS and or a qualified tax professional.

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