Maximize Your Tax Return
(ARA) There are two approaches to doing taxes. One is to wait until the last minute and rush through them, crossing your fingers that you dont owe the government an unexpectedly large chunk of money. Judging from the lines at post offices across the country at midnight on April 15, there are many, many people who take this approach.
Considering that a little advance planning can save you money and headaches, the second approach being organized and taking control of your taxes is a better way to go.
Its also important to know that when taxes go unpaid, the IRS can place a lien on your assets. Unpaid tax liens can remain on your credit report for up to 15 years, while paid tax liens can remain on your credit report for seven years from the date paid. Both have a negative impact on your credit score, said Maxine Sweet, vice president of public education for Experian, the national consumer credit reporting company.
Having time to pull together the information you need, analyze it and calculate your taxes means you wont be frantically scrambling to find your W-2 form the day before taxes are due. Starting early also gives you time to double check your tax return for any mathematical errors, and to make sure youve claimed all the deductions for which you qualify.
Tax laws and peoples tax situations change from year to year, so you may be entitled to different deductions this year than last year. Major life changes often trigger a modification of deductions, or there may be deductions that you have missed in past years. Here are a few examples of common, but often overlooked, deductions. Check with your financial advisor if you have questions, or you can get more information from the IRS Web site or helpline.
- State and local sales tax - If you itemize your taxes, you may choose to deduct state and local sales taxes instead of state and local income taxes. While this deduction mainly benefits taxpayers with a state or local sales tax but no income tax, it may give a larger deduction to any taxpayer who paid more in sales tax than income taxes.
- Charitable donations - You can deduct financial contributions as well as in kind donations of things like clothing and household items.
- Education expenses - A variety of education-related costs may be deductible, including student loan interest and education costs incurred to maintain or improve job skills.
- Disaster or theft - Unfortunately, lots of people may be using this deduction on their 2005 taxes. If your home was damaged by floods, ice storms, earthquakes, other natural disasters or theft, you may be able to deduct what your insurance doesnt cover.
- Job search expenses - If you were job hunting this year, you can deduct most expenses related to the search, including cost of resumes, phone expenses, postage, career counseling and travel to and from your interviews.
- Medical expenses - The threshold for deducting medical expenses is high, but if youve accrued a lot of medical bills you may qualify.
- Tax preparation - You can claim the cost of tax preparation software or the cost of having a professional do your taxes.
- Real estate - Your mortgage interest is deductible, and if you refinanced this year, you may be eligible to deduct some of the costs associated with the loan. If you sold your main residence, you may be able to exclude up to $250,000 of gains ($500,000 for married taxpayers filing jointly) from your income tax return.
These are just a few of the legal tax deductions; there may be others you can claim. Be sure you have proper documentation to back up any deductions you claim, says Sweet. And remember, while it may seem like a windfall to get a large tax refund, your goal should really be to break even. If youre getting a refund, youve basically been loaning the government money without interest.
While youre focused on financial issues, take a few more minutes to check your credit report and make sure youre on track with your financial plans. Web sites like www.experian.com give you quick and easy access to your credit report and credit score. Make sure all the information on your credit report is accurate. If you notice anything questionable, such as accounts you dont recognize, or payment disputes, resolve those issues by contacting your creditors and the credit reporting companies.
For more information on checking your credit report, visit www.experian.com.
Courtesy of ARA Content