Tax Tips

FOR HOMEOWNERS
ABOUT TAX PLANNING
FOR SMALL BUSINESS
FOR SELF PREPARERS
FOR FAMILIES
ABOUT EDUCATION
ABOUT THE IRS
ABOUT FILING EXTENSIONS


FOR HOMEOWNERS

  • Mortgage interest is usually your biggest tax deduction.
  • In most cases, you can deduct the points you paid on your loan.
  • Second mortgage & home equity lines of credit can be deductible.
  • Re-financing costs can be deductible.
  • Property taxes are typically deductible.
  • There can be tax free capital gains on the sale of a home.
  • Be aware of the Mortgage Interest Credit.
  • Exclude up to $500,000 of gain from taxes when you sell your house.

ABOUT TAX PLANNING
  • If your medical expenses are close to the AGI limit (7.5%), consider having additional treatments & services within the same calendar year. Tax Preparation and Planning requires intimate knowledge.
  • Consider paying your January mortgage payment in December.
  • Make donations prior to January 1st.
  • Consider paying your property tax bill prior to January 1st.
  • Plan for the alternative minimum tax.
  • Maximize contributions to 401(k) and 403(b).
  • You have until April 15 to make an IRA contribution.

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FOR SMALL BUSINESS
  • Unlike personal income, business income is not taxed - only the profit on a business is subject to taxes.
  • The Self-Employment Tax is independent of profit.
  • Keep all your receipts.
  • Deducting your home office and associated expenses provides excellent tax breaks.
  • Turn non-deductible vacation expenses into deductible business travel.
  • You must set up most retirement plans by December 31 in order to get a tax deduction for the current year.
  • Hire your kids and save on taxes.
  • You can deduct up to $100,000 of capital equipment costs ranging from computers to certain sport utility vehicles.

FOR SELF PREPARERS
  • Make sure you check your math.
  • Make sure you understand how the tax law changes apply to you.
  • Make sure you are using the correct tax forms.
  • Make sure you sign your return.
  • Make sure you use last years return as a starting point.
  • Make sure you choose the optimum filing status.
  • Form 1040EZ may be easy but the long form 1040 may cut your tax bill.
  • Using the incorrect tax table can cost you money or trigger an audit.
  • Missing valuable deductions such as 50% of self employment tax can cost you money.
  • Make sure you calculate the minimum alternative tax.
  • Avoid math errors and unwelcome letters from the IRS by using tax software to prepare your taxes instead of by hand.

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FOR FAMILIES
  • The Child Care Credit can cut $2,100 from your tax bill.
  • Take up to $10,000 off your taxes by adopting a child.
  • Take advantage of the Kiddie Tax Rules.
  • Setting up a ROTH IRA for your children creates another deduction.
  • Consider the advantages of a living trust.
  • Enroll in Child Care Reimbursement Plans at work.
  • Child tax credit increased to $1,000 per child.
  • Students should check with parents before claiming an exemption deduction on their own tax return.
  • Make sure you get a social security number for each of your children.

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ABOUT EDUCATION
  • Use a qualified prepaid tuition program under a Section 529 Tuition Savings Plan to pay for future education.
  • Consider a Coverdell Education Savings Account and save up to $2,000 per student per year.
  • Deduct up to $2,500 of student loan interest per year.
  • Get up to $5,250 of employer sponsored tuition reimbursement deductions.
  • Beware that some scholarships and grants are taxable. Know the difference.
  • Take a deduction for tuition and fees even if you don't itemize.
  • Eligible teachers get a deduction for classroom expenses.
  • If you donít qualify for the Hope or Lifetime Learning Credit -- then consider a tuition and fee deduction.

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ABOUT THE IRS
  • Answer any IRS correspondence immediately.
  • Keep copies of everything you send and receive from the IRS.
  • Keep prior year tax returns and records for at least 7 years from the due date of the return or date you filed, whichever is later.
  • Keep good records that substantiate your income and deductions -- this may save you from paying additional taxes, interest or penalties.

ABOUT FILING EXTENSIONS
  • You can get an automatic four month extension of time to file your federal return by filing Form 4868 on or before April 15th.
  • If you need more time -- you can apply for an additional two month extension of time to file by filing Form 2688 on or before August 15th.
  • It is possible to get an extension of time for payment of tax by filing Form 1127 -- but you must be able to show that immediate payment would cause severe loss and undo hardship. Note: Legal requirements are strict.
  • An extension of time to file is not an extension of time to pay. Pay your tax by April 15th and avoid further penalties and interest.

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