If you're like me, taxes are your #1 expense and you look at every possible way to minimize their cost. As such, you'll be interested in this piece that lists six tax breaks that can save you money:
1. You may deduct your state and local income taxes on your federal return. Or, instead, you may choose to deduct the general sales tax you paid in 2005.
2. If you're divorced and don't have a paying job, you may think you're not allowed to make an IRA contribution, because the rule is you must have earned income to do so. However, alimony received is treated as taxable income on your federal return, so, in fact, you are eligible.
3. Low-income taxpayers may receive a credit (a dollar-for-dollar reduction of the taxes they owe) for 50 percent of their contributions up to $2,000 to qualified retirement savings plans such as 401(k)s, 403(b)s as well as IRAs.
4. Many investors know they can use their stock losses to offset the taxes they owe on their stock gains in a given tax year. If the losses exceed the gains they can use up to $3,000 in losses to offset ordinary income. But you don't have to have gains to write off losses up to $3,000 of income if you had a holding that became worthless in 2005.
5. An above-the-line deduction (e.g., alimony you paid, business expenses, stock losses up to $3,000, deductible IRA contributions) reduces your gross income, and therefore your adjusted gross income (AGI).
6. Sure, there are three months until April 15, but if that's just too tight a timeframe for you, this year you're allowed to apply for a free, automatic 6-month filing extension, no questions asked.
My thoughts:
1. Ha! I wish! My state is one of the most tax-hungry.
2. Don't qualify, thank God.
3. More thanks for not qualifying.
4. Have to look into this one. I did take a flyer on Sunbeam a couple years back and they went belly up.
5. I believe my accountant looks for things like this, but there's no harm in asking.
6. I like to get my return done early and get it over with. No need to delay.
In the end, I guess I'm "happy" that I get to pay taxes. The other option, not having an income and thus not owing taxes, is not attractive at all.
FMF recommends: H&R Block. Do it yourself or have us do it. It's never been easier.
Typical list of tips..... they are always ones that are akin to "Top Tips for living longer" - 1. If you are bleeding, stop it. 2. If you are shot, go to the hospital. 3. If you smoke, stop it.... etc.
Rarely do any apply, and I just go back to my TurboTax, deduct my mortgage interest, my taxes, my contributions, my kids, and e-file away.
Posted by: Bill | February 01, 2007 at 10:18 PM