Archives For Tax Planning

I received an email from Ramit over at I Will Teach You to be Rich informing me that he has a CPA friend who has agreed to answer tax-related questions for free. Just click on the link and follow the directions. I’m sure the CPA won’t be able to answer EVERY question, but Ramit says that he will answer some of the best questions. So, if you have an issue you’re not sure about, this might be your chance to get some help without forking over some dough.

Find out for sure by using the IRS 2006 AMT Assistant. I used it and it works great and is very easy to use.

Here’s some other interesting articles I found regarding the AMT:

Tax Timing – Want to avoid the AMT? Make sure you time your financial decisions right [MarketWatch]

Guide to the AMT [Fairmark]

The Alternative Minimum Tax [SmartMoney]

God Bless Tax Cut!

March 1, 2007

I have been using Tax Cut for several years now and I have to say it is great. I haven’t had any problems with it whatsoever.

No, it’s not for everyone. If your taxes are more complicated, you may want to skip the software programs and go straight to a CPA. Our taxes aren’t that complicated, so I feel perfectly able to do them myself.

Anyway, they’re done! Now it’s time to start planning for next year! (It never ends)

Lots of people like to get tax refunds each year. There’s something pleasant about receiving a nice lump sum all at once. I liken tax refunds to parents taking their kid’s money from them and giving it back later without interest. That’s exactly what the IRS is doing when you get a tax refund. A tax refund is exactly that: a REFUND. A refund of YOUR money.

With a little effort on your part, you could make some adjustments to your W-4 (PDF), which would allow you to keep more of your money throughout the year. It’s quite simple to fill out the form, just follow the instructions. You will then need to turn the form into your human resources department so that they can make the changes to your check. You could then deposit that extra money into your IRA or a savings account and earn interest on through out the year instead letting the U.S. government hold it for you.

Now, keep in mind that adjusting your W-4 is NOT without risks. If you claim too many allowances, you won’t have enough withheld from your check, leaving you with a shortfall and you’ll have taxes due when you file. So, you would be smart to be conservative with your numbers when filling out your W-4. Your goal should be to get your withholding as close to the amount you owe without requiring you to pay in when you file your taxes.

How much could this save you in a year?

The answer depends on how much you usually get as a tax refund. If you normally get a $2,000 tax refund, you could adjust your withholding so that you could get an additional $167 per month in take-home pay. If you deposited that amount into a high-yield saving account that paid 5% annually, you would have around $2,050 in a year’s time. (Of course you’ll have to include your $50 in interest on your taxes). No, it’s not a lot but $50 is $50. You can run the numbers yourself by downloading this Excel Spreadsheet I put together. You could have even more if you deposited your savings into an IRA, which is sheltered from taxes.

Related: Increase Your Cash Flow in Two Easy Steps!

Here’s something new for this year. For the first time, the IRS will allow filers to have their income tax refund direct deposited in up to three different accounts. This is great for people who don’t want to touch their refund. If you’re anything like me, money sitting in a bank account just seems to vanish. Anyway, to take advantage of this new service, you will have to attach Form 8888 (PDF) to your tax return. You’ll also need to check the appropriate box:

IRS Form 1040

I suggest that one of those accounts be your investment account or IRA account.

UPDATE: I made a mistake. The actual Tax Carnival is at WANDERING TAX PRO. Sorry for the confusion.

I know taxes aren’t the most exciting topic in the world but if you get a chance, you might want to check out the 10th edition of the Tax Carnival over at Wandering Tax Pro. There might just be something there that you can use in preparing your taxes. Fun, fun, fun…

I posted a list of the 5o of the Most of the Most Easily Overlooked Tax Deductions back in November. The deduction for cell phones received a lot of attention. So, here’s what I found out about this particular deduction (NOTE: I am NOT a tax expert. I’m just sharing information that I have found):

First, from IRS Publication 17 (Chapter 28):

Depreciation on Computers or Cell Phones

You can claim a depreciation deduction for a computer or cell phone that you use in your work as an employee if its use is:

For the convenience of your employer, and

Required as a condition of your employment.

For more information about the rules and exceptions to the rules affecting the allowable deductions for a home computer or cell phone, see Publication 529.

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