Tax Talk: Here’s what is new for the 2007 Tax Filing Season
With tax time just around the corner, now is the times to consider whether you want to claim the standard deduction or file an itemized income tax return. Why? Often overlooked deductions can make a huge difference in lowering your tax bill if you itemize.
The standard deduction ($8,750 for single filers, $17,500 for married couple filing jointly) is fine for those people who have  uncomplicated tax situations. But, the amount of your home mortgage interest payments, state taxes, property taxes, charitable contributions, and hurricane losses could actually be many times over the standard deduction. Meaning, if you don’t itemize, you may not be deducting as much as you are entitled to on your taxes.
Education Expenses
There are many education-related deductions and credits available, whether you are currently making tuition payments, paying off your college degree, or saving for your children’s college education. You owe it to yourself to check out the explanation of education tax benefits available on the IRS website at http://www.irs.gov.
Home Office Deduction
If you’re self-employed, and your home office is your principal place of work, and your gross income is more than your related deductions you should be able to claim this deduction. If you’re employed by a company, you can deduct the home office ONLY if it is for your employer’s convenience. You must also pass the “exclusive use” rule to qualify for deducting a portion of your home’s expenses, including mortgage/rent, utilities, and even repairs.
Charitable Deductions
Don’t forget to deduct all that you have given to charitable organizations, especially if you’ve given cash gifts or donations of clothing, toiletries, food, or appliances that you can then deduct at fair-market value. Go through your receipts, checkbook register, and previous credit card statement to make sure you don’t forget all that you’ve given. Remember too, only donations to qualified organizations, not individuals, will qualify.
Medical Expenses
To qualify for a medical deduction, your medical expense for the year must exceed 7.5% of your adjusted gross income. So, if your income is $50,000 for example, and you have $5,000 in eligible expenses, you can deduct those expenses above and beyond $3,750. Remember, in 2006 the IRS became more generous about what can
qualify, including weight loss programs, smoke cessation programs, even a health club membership if prescribed by your doctor in addition to other approved expenses like long-term health care insurance premiums, mileage to and from doctor appointments, over-the-counter medications, contact lenses, prescription birth control, and fertility treatments.
Miscellaneous Expenses
Did you know that gambling losses, job search expenses, safe deposit fees, subscriptions to investment publications, and even tax return preparation expenses can be claimed as tax deductions? It’s true – however, your total miscellaneous expenses must exceed 2% of your adjusted gross income to qualify.
How much of a tax deduction does the IRS allow for tax exemptions?
Personal tax exemptions reduce your taxable income on your tax return. Each personal tax exemption you claim on your 2007 tax return is the equivalent of a $3,400 tax deduction. Generally, you are allowed on tax exemption for yourself and if you are married, one tax exemption for your spouse, and, if you have dependents, one tax exemption for each dependent on your tax return.
A person qualifying as your dependent:
- Must be a member of your extended family for the entire tax year;
- Must receive less than $3,300 of gross income in 2007 (unless the dependent is your child and either under aged 19 or a full-time student under age 24);
- Must receive more than ½ of his/her support from you;
- Cannot file a joint tax return with his/her spouse, unless the joint tax return is filed solely to obtain a tax refund when neither the child nor the spouse if required to file a tax return;
- Must be a U.S. citizen or national, or resident of the U.S., Canada, or Mexico.
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Hurricane Katrina
The $500 exemption that was permitted for 2005 and 2006 for housing is no longer allowed for 2007.
Free Tax Preparation for Seniors
AARP’s “Tax-Aide” Program Provides Free Tax Prep for Seniors
Sponsored by the Internal Revenue Service, Tax-Aide is the largest free tax counseling and preparation program in the country, helping more than 2 million elderly people with their federal, state, and local tax returns at some 7,800 sites throughout the United States during tax season. Most clients are low-to-middle income taxpayers over 60 year old. Tax-Aide sites are in east-to-access places like senior centers, libraries, banks, and grocery stores. Volunteers will also visit retirement and nursing centers and homebound elderly taxpayers.
Are you a senior, or do you know a senior who could use some help this tax season? For more information call the AARP Tax-Aide Information Line at 1-888-227-7669 or go online at www.aarp.org/taxaide. The AARP Tax-Aide site locator will ask for your zip code to find nearby help. Here’s what’s needed at the site:
- Photo ID
- Social Security Card
- Wage and earnings statements
- Interest and dividend statements
- Copy of last year’s federal and state returns (if available)
- Bank routing/account numbers
Getting the Most Out of Your Tax Refund:
The end of the year has come and gone and tax time is approaching fast. Do you owe tax or will you be getting a refund?
According to the Internal Revenue Service, 81% of tax returns files in 2006 received a refund, with the average refund being $2,104. In the past, taxpayers choosing to receive their refund via direct deposit had only one choice: have it deposited into one checking or one savings account at one bank. However, the beginning of January 1, 2007, the IRS began offering taxpayers the flexibility to split their refunds into three different accounts in up to three  different banks. This will give taxpayers an excellent opportunity to save part of their refund, rather than spending it. For more details, go to www.irs.gov and search for Form 8888.
Do you save it or spend it? Here are two suggestions to help you stretch your refund as far as it can go:
Savings: Do you have a high yield savings account, or are you interested in purchasing a Certificate of Deposit (CD)? Do you have an IRA or similar retirement plan to contribute a little extra to? There are many options available when it comes to savings and investment, but before you choose to simply save your funds, think about your debt and what it is costing you each month in interest.
Alleviate some debt: Pay off some of your existing debt. As illustrated above, if your investment interest rates do not exceed your debt interest rates, then you should be thinking about which debt to pay down, rather than which fund to invest in.
To Learn More…
The IRS website at http://www.irs.gov/index.html provides a wealth of helpful, important information on tax filing which could end up saving you a lot of money on this year’s tax return. Be wise, and take a few minutes to explore! The following websites are also good tax information resources:
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