I received the following tax tips from Nancy Colson, who represents J. K. Lasser, a tax expert. After obtaining a permission, I decided to post these tips here to share with everybody since I feel they are quite helpful in this tax season. For more information, visit www.jklasser.com.
Mistakes and Potential Pitfalls
Not filing because you cannot afford to pay – If you don’t file because you can’t pay the entire tax due, you will only increase the amount you will have to pay later with additional and increased penalties. If you enter into an installment arrangement with the IRS, and your return was filed on time, the late payment penalty you pay monthly on the outstanding balance will be reduced from .5% to .25%.
Estimated taxpayers beware – Estimated tax for payers with income above $75,000 for single filers/ $150,000 for joint filers has significantly increased over the past two tax years. For 2007 you had to remit 110% of your 2006 tax liability.
Avoid Kiddie Tax – You don’t have to wait for a savings bond to mature to report the interest. You can periodically report the interest. This is especially favorable for children in years where they have no income or are below the threshold.
Missing, duplicate or incorrect Social Security Number – The IRS will issue a partial refund until they can verify the information on the return. They will recalculate your tax liability based on the information they have and you could wind-up with a tax bill instead of a refund.
Filing status – Choose the best filing status for your circumstances. Some overlook head of household status, which is a more favorable rate of taxation. Qualified widows (ers) can file at joint rates for the two years following their spouses’ death.
Moving expense to take first job – Moving expenses to get to that first job are deductible. And you get this write-off even if you don’t itemize. If you moved more than 50 miles, you can deduct the cost of getting yourself and your household goods to the new area, including 18 cents a mile (and parking fees and tolls) for driving your own car.
Residential sale exclusion – If a seller fails to reside in a house two out of the last five years that fat $250,000 ($500,000 if filing jointly) exclusion could be lost. A prorated exclusion may be available. Under certain circumstances you can add-up the occupancy period of spouses and /or if the sale is due to unemployment, military deployment or other unforeseen circumstances.
Student loan interest paid by mom and dad – Until recently, if parents paid back a student loan incurred by their child, no one got a tax break. Now there’s an exception. If mom and dad pay back the loan, the IRS treats it as though they gave the money to their child, who then paid the debt. So, a child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by mom and dad.
Out-of-pocket expenses relating to charitable activities, including the standard mileage deduction
Medical transportation, including standard mileage deduction and lodging expenses incurred for medical reasons while away from home
Legal fees incurred in connection with obtaining or collecting alimony
Gambling losses to the extent of gambling gains
Costs associated with looking for a new job in your present occupation, including fees for resume preparation and employment of outplacement agencies
Contraceptives, if bought with a prescription
Commissions and closing costs on sale of property
Seller-paid points on the purchase of a home
Education expenses to the extent required by law or your employer or needed to maintain or improve your skills
Mortgage pre-payment penalties and late fees
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