Savings on Taxes

2007-01-07

As the year end approaches, it’s time to think of taxes – and how to save on them. Why pay Uncle Sam when you can pay yourself instead? Here are tips on what you can do.

Go electronic : You can save a lot of time and money by filing online. Software like TurboTax or TaxCut support e-filing. Using the web application often costs less than buying the software; and gets you a faster refund, if you’ve overpaid. Some states have free online filing as well; income limits apply.

Maximise your IRA : If you haven’t made full use of your limits, funding an IRA will reduce your tax bite. And you get to invest this tax-free or tax-deferred, allowing for higher returns.

Check for tax breaks : Each year, tax breaks vary – find out which you might be eligible for. For instance, last year had reliefs for hurricane victims and people who helped.

Child relief : You can claim child tax credit even if divorced or a single parent – check the new tax laws and whether they apply in your case. If you’re paying for day care either at home or or at a child care center, you could get credit for part of the cost.

College costs : If you’re funding a student through college, you could claim credit for part of the amount; income limits apply. Student loan interest is also deductible in some cases.

Mortgage and home deductions : Apart from interest, you may also be able to deduct origination fees and discount points, if you took out a new loan or refinanced.

Investment losses : While it’s unlikely given the way stocks have boomed, if you did take losses on your stock portfolio, you can deduct upto $3,000 from your regular income and carry forward the rest. This can be highly useful if you have older losses that you couldn’t use.

Working from home : If you ran a business from home, you could qualify for additional deductions. However, this can be tricky – the IRS tends to audit tax returns which show abnormal deductions. Apart from depreciating or writing off a computer, software, internet and communication expenses, you could also get credit for a home office. Make sure that these are exclusively used for business purposes; for instance, have a separate phone line for business, and earmark an area as a home office that looks like an office and not part of the living room.

Alternative Minimum Tax : Check if you are liable for the Alternative Minimum Tax; if you’re too efficient at deductions, you might get slapped with this instead. It’s estimated that around 4 million taxpayers will owe the Alternative Minimum tax. Check it out at http://apps.irs.gov/app/amt

Related Articles:
» Self Employment Tax - Do you owe?
» Tax Deductions Many People Overlook
» Alternative Minimum Tax

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