Tax Time

With a week to go, it’s probably time to kick you in the tush to get going on your tax prep. The good news is that you still have an entire week to get this done. The bad news is that if you were hoping to get help with your returns from a tax preparation professional, you may need to go on extension—they are swamped and unlikely to get your return filed unless someone owes you a big favor. With time ticking, here are some tips to help you along.

Can I do it myself? It’s to prepare your own returns these days. Check out programs like Intuit’s Turbo Tax (turbotax.com), H&R Block’s TaxCut (taxcut.com) or you can go directly to irs.gov to e-file your return. The IRS has now partnered with a number of commercial preparers to offer free online tax prep as well as e-filing for taxpayers with adjusted gross income (AGI) of $50,000 or less. To find out more about free online filing, go to taxadmin.org.

Standard Deduction or Itemize: This is the first decision you have to make before you file. For many taxpayers, taking the standard deduction may seem like the easiest path to finishing your return. (If you are married filing jointly, the standard deduction for 2007 is $10,700; $5,350 for singles.) But 2002 research from the Government Accounting Office showed that over two million people (about 2% of the total number of filers) may have paid nearly a billion dollars more than they needed to in taxes, because of a failure to itemize. It’s likely that if you are paying mortgage interest, make charitable donations or live in a place with high property taxes, itemizing may make sense. Do a quick tally of the deductions to determine if the total is greater than the standard deduction available to you. You may find that itemizing allows you to save dollars.

If your adjusted gross income is above a certain amount, you may lose part of your itemized deductions. In 2007, the itemized deduction phase-out begins at $156,400 ($78,200 if married filing separately).

New Mortgages or Re-financings: If you obtained a new mortgage or refinanced in 2007, don’t forget to deduct origination fees or any points (points are prepaid interest that people often pay lenders upfront to reduce monthly payments) that you paid. For a new mortgage, buyers can generally deduct all the points they paid in the year that they assumed the mortgage. BUT, the rules are different when you have refinanced an existing loan. On a re-fi, points are written off over the life of the loan. For those of you who are serial re-financers don’t forget to take your old points as an itemized deduction.

Moving Expenses: Many taxpayers will be able to write off moving expenses if they relocated to a new job that is at least 50 miles from your old house than your old job was. You can claim this even if you do not itemize other deductions.

Home Office: This is one of those deductions that the IRS loves to pounce on in an audit, so be careful how you claim it. The rules are that the home office must be your principal place of business, not a back up for when you don’t feel like commuting. Also, the office must not be used for anything else, even if it’s just a corner of your “great room.” If you pass the first test, then you need to calculate what percentage of your house your office equals. The number can be determined by square footage or number of rooms. You can then apply that percentage to your overall housing costs, including mortgage interest, utilities and upkeep. Don’t forget that when you sell your house, all of those juicy business deductions, including depreciation, must be recaptured as taxable gain.

Certain medical expenses: Qualified medical costs must exceed 7.5% of your AGI before they become deductible. While that’s a high benchmark, millions of Americans are hitting it.

Retirement Plans:
Some savings had to take place prior to the end of the calendar year (usually employer-sponsored plans like 401(k)s,) while others can help you right up until the tax filing deadline.

IRAs: Limits on IRA and Roth contributions for 2007 are $4,000 or $5,000 if you are over 50. You can make an IRA contribution up to tax filing.

Carry-forward losses: After you net out the short-term and long-term investment gains and losses for 2007, you still may have losses left over. If you still have losses, you can use $3,000 of those losses against your ordinary income. To see if you have carry-forward losses, pull out last year’s tax returns.

AND DON’T FORGET…

Tuition and fees deduction, Hope, life and tax credits, student loan interest deduction. The rules are confusing on all of these education plans, but take time to read them – it may save you money!