High Income Tax Breaks

Retirement Plans for the Self-Employed

If you're self-employed, you may be able to contribute and deduct up to $45,000 for 2007 ($46,000 for 2008) by setting up a simplified employee pension, or SEP. Contributing to a SEP could dramatically reduce your taxable income and save you a bundle. Think you've already missed the boat for your 2007 taxes? Think again. If you don't already have a retirement plan in place, you can still set up a SEP and make a deductible contribution to your account for 2007. And that could be done as late as Oct. 15 if you extend your return for the automatic six-month period. For more on these types of plans, click here.

Credit for Overpaid Social Security Taxes

Did you have two jobs last year and earn more than $97,500? Then you probably overcontributed to Social Security. Your credit will be for the amount you contributed beyond $6,045, which represents your half of the 12.4% Social Security tax based on a maximum salary of $97,500. Getting the money back is easy — just report the overpaid amount (you can tell what that is by looking at your W-2s) on Form 1040, line 67.

Deducting Alimony Payments to Your Ex

This may be small consolation, but if you started alimony payments last year, they're probably deductible. It all depends on the terms of your divorce agreement. (Read our story for more on this.) Assuming you qualify, you can claim a full write-off of your alimony payments on page one of Form 1040.

Follow SmartMoney on Facebook, Twitter & More:

  To license SmartMoney content and tools, click here