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Complete List: Asa Aarons' 50 Ways To Cut Your Taxes
By Carrie Johnson, Washington Post Staff Writer
Posted: March 17, 2007
NEW
YORK -- Asa is back with another installment in his "50 Ways..."
series, and this time, it's all about the taxes. We're less than
two months away from the final filing date (this year April 17),
so get a jumpstart on smart filing by taking advantage of these
tips.
Tip #1: Do it sooner rather than later.
Take your time, gather your records and consider this a way of
possibly getting back money you overpaid to the government. This
year, tax day is actually not April 15, which falls on a Sunday,
nor is it April 16, since that's a holiday in Washington, D.C.,
but April 17th.
Tip #2: Choose the right preparer.
It's important for you that this person can be able to represent
you if you get audited. They need to have either a CPA, or be
an enrolled agent or a tax attorney.
Tip #3: Choose the right dependents.
Last year, congress changed the law for dependents and they established
something called "qualifying child", which allows any adult to
claim a child and use the tax deduction to lower your gross income.
Dependents aren't limited to parents only, so an adult child living
at home might be able to claim a brother or sister and get more
tax benefits. The IRS no longer requires the person claiming the
qualifying child to provide more than half of his financial support.
Tip #4: Use tax software.
Tax software does more than crunch numbers -- it stays on top
of hundreds of regulations that change from year to year. It's
a great way to do it yourself and stay on top of new tax laws.
Two of the better programs out there Turbo Tax and Tax Cut.
Tip #5: Be thorough.
Don't shortchange yourself. Check your receipts. Think about business
expenses and charitable giving. When you are done, check it all
over again to see if you missed anything.
Tip #6: File electronically.
It speeds the entire process. You can get a refund within two
weeks, and many tax preparers can e-file for you. You can also
file electronically with tax software or through a number of Internet
websites. If you don't have a computer, many local governments
and nonprofits are providing free help during tax season. Check
with your city or town and other local agencies for information.
Tip #7: Avoid refund anticipation loans.
You are spending a huge amount of money on interest and service
fees to get cash that will be yours anyway in just a few weeks.
The effective interest rate that you're paying to get it is outrageous,
so I would say it's probably one of the worst ways to borrow money
and you're probably better off you know borrowing on a credit.
PROFESSIONAL TAX PREP
Tip #8: Tax-prep fees.
The money you spend having your taxes prepared, as well as subscriptions
to finance and investment journals, may be tax deductible next
year if you itemize.
Tip #9: Request an extension.
If you just can't make the filing deadline, apply for a free,
automatic 6-month filing extension, no questions asked. Keep in
mind, though, the extension is only good for filing your return,
not for paying any tax you owe.
FAMILY AND EDUCATION
Reducing your taxes can truly be a family affair, with just about
everyone involved one way or another. Begin at the beginning --
when you get married.
Tip #10: Married or single?
The wedding bell tax blues won’t be ringing quite as loud anymore.
The tax code in recent years has really taken away a lot of the
penalties that were placed on people who were married
Tip #11: Child tax credit.
Married couples with adjusted gross income less than $110,000
or a single parent making less than $75,000 can take a full $1,000
credit for each child under 17 years
Tip #12: Child care credit.
Whether its at home, in day care or at day camp, if you pay someone
in order to allow you to work to watch children under age 13,
you may qualify for a credit worth up to $1,050 for one child
$2,100 for two or more.
Tip #13: College costs.
If you have a student in college this year, you can reduce your
gross income by as much as $4,000 in tuition and fees. You can
get a full deduction if your income is less than $65,000 for a
single filer and $130,000 for a couple. You can get a limited
deduction of $2,000 if your income is less than $160,000 for couples
and $80,000 for singles.
Tip #14: Hope credit.
But there's still hope -- it's a credit for a reduction of up
to $1650 in tuition for each student in the first two years of
college.
Tip #15: Lifetime learning credit.
The lifetime learning credit it is worth as much as $2,000 for
all the students on your tax return enrolled in college or graduate
school. Both the hope and lifetime learning credit are income
dependent. Your adjusted gross income must be less than $55,000
if you file alone or $110,000 if you file jointly.
Tip #16: Deduct college loan interest.
You may be able to deduct up to $2,500 in student loan interest
even if you don't itemize. To qualify, your income has to be less
than $65,000 or $135,000 if filing a joint return.
Tip #17: Keep it in the family.
If you have children at least 18
years old, consider transferring appreciated stocks to them. When
the child sells the stock, the stock will be taxed at the child's
lower tax rate.
Tip #18: Investments.
Holding stocks that pay a dividend is smart. When you sell a stock,
make sure you've held onto it long enough to reap the tax rewards
from it.
Tip #19: Receiving alimony.
Alimony is taxable income on your federal return. This means you
can count it as earnings and use it for an IRA contribution. Save
those payments for retirement and get a deduction.
Tip #20: Paying alimony.
The ex-spouse who pays the alimony may use the payments he or
she is making to reduce gross income.
Tip #21: Medical transportation.
With medical expenses it begins before you even get to the doctor's
office. You may be able to deduct eighteen cents per mile for
your car plus tolls, train, cab or airfare. Keep records.
Tip #22: Profit from self-improvement.
Prescribed weight-loss programs, smoking cessation programs, alternative
health care, tuition for a child with learning disabilities may
be deductible.
Tip #23: Medical savings accounts.
Medical Savings Accounts allow you to purchase catastrophic rather
than low-deductible health insurance. You can then place the premium
savings in tax-free accounts to pay for routine medical and preventive
care.
Tip #24: Medical dependent.
While you may not be able to claim your parents as dependents,
you may still be able to include what you spend for their healthcare
in your deductible medical expenses. If parents would be your
dependants and are part of your family health budget, then they
could be considered medical dependents.
Tip #25: Deductible medical costs.
Medical costs have to exceed 7.5 percent of your adjusted gross
income to be deductible. It's a reach -- but you can include things
like acupuncture, braces, attendance at certain medical conferences
and even lead-paint removal if a child with lead poisoning lives
in the home.
JOB AND SELF-EMPLOYMENT
Whether you are out and about in search of a new job or getting
ready for a major position, there are some things you can do to
make the job search itself pay in reduced taxes.
Tip #26: Job search expenses.
Everything from a cab fare to resume copies at the local printer
can be deductible. And if you get that job, your moving expenses
may also be deductible.
Let’s say you have to hope on an airplane and go do a job interview
some place -- you can deduct those expenses even if you don't
end up taking that job.
And if you get that job, your moving expenses may also be deductible.
Tip #27: Too much tax.
If you switched jobs last year, you might have had too much social
security tax withheld. Check your W-2s and if a combined income
of more than $5,840 was withheld. Claim a credit for the overpayment.
Tip #28: Check your W-4.
The form you fill out when starting a job may have too many or
too few exemptions.
Tip #29: Self-employment income.
Taxpayers with a full or part-time business can shelter part of
their income in an SEP (Simplified Employee Pension) if you file
an extension for taxes for one now, then actually fund it by Oct.15,
2007.
Tip #30: Domestic production.
If you own a business that builds homes, develops software, or
makes practically anything and you do it here in the USA, check
into the new domestic-production deduction: it's worth up to 3
percent of your net income.
Tip #31: Self-employment deductions.
If you are your own boss, save your receipts for transportation,
office equipment, client meals, etc., and don't be afraid of taking
what's rightfully yours to take.
Note: What can trigger an audit? Having deductions
that match a certain percentage of your income.
“The IRS has developed statistics and they have something called
the DIFF Score and its the Discriminate Index Function. If I knew
what the score was I'd be a rich man because I could sell it to
everybody.”
So every tax return is given a score, and if the DIFF Score is
too high then there's a good probability that the IRS may be able
to collect some tax on it. Make sure what you're putting down
is appropriate and correct.
HOME AND PROPERTY
Tip #32: Telephone tax refund.
Get the telephone excise tax refund! This is money back for federal
taxes paid for long-distance service from March 2003 until July
2006. You can either take the standard amount which ranges from
thirty to sixty dollars or request a refund of the actual amount
based on your telephone records and proof of payment.
Tip #33: Above the line.
If you're a homeowner, you may be able to move a portion of your
mortgage interest and property tax deduction (which normally is
an itemized deduction) and use it instead to reduce your gross
income dollar for dollar if you have a home business. That would
also reduce the income on which you'll owe self-employment taxes.
Tip #34: New loan?
Last year was the third busiest ever for home loans. If you bought,
or refinanced, don't forget to deduct your origination fees and
discount points. You can generally deduct all the points the year
you paid them when you buy a home. When you refinance, you must
spread the deduction over the life of the loan;. However, if you
refinance again, you can deduct all remaining points from the
first.
Tip #35: Home work, not homework.
You may be able to write off your home office. Tread carefully.
Done wrong this deduction could get you audited.
Remember your home office must be your principal place of business,
not a backup for the cubicle your boss provides, and you can't
use the room for anything else, even an occasional guest. So it
can't be half TV room, half office. It's all office, all the time.
What makes this deduction such a gold mine is that every year
you can also write off a portion of all your home-related expenses.
You can also take depreciation on the office, although that depreciation
is is treated as a taxable gain when you sell
Tip #36: Energy efficient savings.
You can get a credit of up to five hundred dollars for things
like new energy-efficient windows, water heaters or insulation
to your home.
Tip #37: Deduct PMI.
PMI personal mortgage insurance for those who put down less than
20% will be a deduction for mortgages taken out in 2007.
Tip #38: Check on your rental property.
If you have rental property out of the area and your traveling
to do things on the property then you can you can legitimately
deduct those expenses.
Tip #39: Business deductions.
Say in addition to your full time job, you also borrow money to
invest in a rental property. You may be able to deduct the loan
interest as a rental expense. Plus any materials or classes you
paid for to educate yourself about becoming a landlord.
Tip #40: Give to others.
Donating to charity in cash and clothing or property is fully
deductible, up to 50 percent of your AGI. Save the receipts or
estimate the fair market value and make note of it.
Tip #41: Charity on wheels.
Many charities accept cars as a donation usually to resell them.
Remember you can deduct only the proceeds from the sale, not the
full fair market value. Charity needs to give you 1098-C.
Tip #42: Document donations.
Whether its cash for the holiday bell ringer or a church bake
sale, if you plan to make it a charitable deduction in 2007 you
must prove it with a bank record or a receipt from the charity.
ENVIRONMENT
Tip #43: New car tax credits.
Get a new car! Some hybrid cars qualify for a tax credit. But
buy it at the beginning of the year; the credit is only good for
a certain number of a particular car sold.
Tip #44: Tax status.
Earned income tax credit. If you are considered a low-income earner,
make sure you ask about this. It could make a huge difference
on your taxes.
Tip #45: Beware the AMT.
“Tax the rich!” Well, be careful what you ask for -- by current
definition rich can mean a cabbie, a plumber - or hair stylist.
All can potentially qualify for the alternative minimum tax.
Once a taxpayer reaches $150,000 in income they are prime candidates
for the AMT but you don't need that much. I've seen people with
much less income maybe with a number of children hit the AMT so
it is not a rich person's nightmare. It's a middle class nightmare.
If you think you might fall within the range of the alternative
minimum tax, sit down with a tax advisor and map out your options.
Tip #46: The AMT forecaster.
With about 4 million taxpayers owing the alternative minimum tax
this year, you may want to find out if you're on the list. The
IRS has a new amt assistant on their web page. Spend about five
or ten minutes inputting information and find out you filing status.
Tip #47: Max out your retirement plans.
Higher limits for 2007 401(k), 457, 403(b) = $15,500.
Tip #48: Leftover losses.
Each year you can offset investment gains with losses. If your
losers add up to more than your winners, you can deduct up to
$3,000 from your regular income and carry forward the rest. Pull
out last year's return and look for capital losses that you couldn't
use.
Tip #49: Planes and boats and cars. If you bought a car,
boat or plane last year, you may be able to add the sales tax
you paid to your deductions on schedule a for sales taxes paid.
You may also include any state and local sales tax paid for leased
motor vehicles.
Tip #50: Don't overpay.
When you get a state refund, you're issued a 1099-G form. Often,
taxpayers report that full amount as income but, in reality, only
a portion of it may be taxable income.
Article at: wnbc.com
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