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Five Tax Tips
Tax
day is just around the corner. If you are an early-bird who has
already filed her taxes, congratulations! For everyone else, here
are a few tips to save you money and time.
1.
Decide whether to itemize deductions.
This
decision will cost you or save you money depending on your situation.
Deductions (unlike credits) allow you to reduce your taxable income.
For example, if you earned $40,000 last year and take the standard
deduction of $4,300 for single filers, then your taxes are computed based
on $35,700 not $40,000. At a 20% tax rate, you save $860 in taxes.
For
some people the standard deduction is sufficient. If your deductible
out-of-pocket expenses do not exceed the standard deduction of $4,300 for
single filers and $7,200 for married couples filing jointly, then the
standard deduction may be sufficient. You may also be able to use
the EZ tax forms that are much shorter.
On
the other hand, if the sum of your deductible expenses would be greater
than the standard deduction, it will lower your tax bill to itemize.
Some conditions for itemized deductions are:
 | You
own or purchased a home with a mortgage -- Interest on your
mortgage, real estate taxes and closing points for home purchases
completed in 1999 may be deductible.
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| You
have kids.
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| You
have multiple investment accounts.
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| You
own a business.
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| You
paid high state taxes.
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Note:
If your adjusted gross income (AGI) exceeds $124,000, some deductions must
be reduced by 3%. See a tax advisor for specifics.
2.
Put $2,000 in your IRA account.
Individual
Retirement Accounts or IRAs allow you to save money for your retirement
and reduce your taxable income today. The government allows you to
contribute up to $2,000 annually. Writing your check before April
15th can count as a deduction from 1999 income.
3.
Don’t forget these deductions.
In
addition to the deductions listed in Tip #1 above, these newer rules may
save you money.
| Health
care expenses – Medical and dental expenses exceeding 7.5% of
your adjusted gross income (AGI) income are deductible. As of
June, 1999, medical expenses for inpatient and outpatient smoking or
drug programs and prescription drugs can be deducted. Also,
women can deduct out-of-pocket expenses for prescription birth control
pills and for Lamaze or other classes that prepare the mother for
labor. These rules are a bit tricky; so, always check with a tax
advisor to be sure.
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| Charitable
Contributions – Donations of money and property such as clothes
or cars to a charity are generally deductible. Additionally,
expenses you incur for traveling to and from the place you volunteer
and telephone calls to solicit donations may be deductible.
Charities should give you a receipt for any contribution over $75.
Keep very good records – receipts, mileage logs, and cancelled
checks – in case you are audited.
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| Educational
Credits – The Taxpayer Relief Act of 1997 includes provisions
for educational tax credits such as the new Hope Scholarship and
Lifelong Learning credits. For more information, see a tax
advisor or http://www.irs.ustreas.gov/hot/tax-law.html
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4.
File electronically.
In
recent years the IRS has invested heavily in making electronic filing
easier and faster. This year they estimate that more than 33.6 million
Americans will use their e-file service. You can use tax preparation
software, websites or the phone to file your tax return. The
wizardry of electronics saves the government money and processing time.
If you are expecting a tax return, you may get your money back quicker
than using paper forms and snail mail.
5.
Download the electronic forms.
Okay,
so you have an uncontrollable need to sit at your dining room table
filling-out form after form. This ritual completes you. Well,
it’s the middle of the night April 14th and you just found a mistake on
line 40, but you do not have another clean form. Thanks to the
miracle of the Web, you can download and print the federal and state forms
(http://www.irs.gov/)
or you can complete the new “Fill-in Forms” which allow you to type-in
your answers then print. Either way, the IRS has made it easier to
continue with your nocturnal mission.
While
the prospect of paying taxes and filing your tax return may cause a
headache, following a few hints and tips may help you through the process.
The
best tip of all is file your tax return on time
– even if you file an extension, the penalties are VERY high if the IRS
rejects your request later. As always, everything may not apply to
your individual situation. Please seek the help of a tax
professional if you have questions.
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