It’s here. Tax season. Thanks to our elegant tax code, soon I will join many others in giving you tax tips until you run to your accountant crying. Let’s start off with an easy one: the IRS Telephone Tax Refund.
Summary: Courts decide old phone tax not legit. Tax is to be refunded. You and I get money back.
Easy way: Check a box and take the standard amount, which is $30-$60 depending on how many exemptions you claim. Single people with one exemption get $30. No bills, no paperwork.
Hard way: Gather all your old cell phone, landline, and VoIP bills from February 28, 2003 to August 1, 2006 and add up all the excise tax you paid for those 41 months. ...
In my post about Roth IRA conversions, commenter JT pointed out a good way to get around the Roth IRA income limits if your income varies from year to year. Simply put contribute to a non-deductible Traditional IRA, and wait until your modified AGI drops below the $100,000 limit to do the conversion into a Roth. Maybe you plan on going back to school or are cutting back your hours to stay home with the kids? Although the limits go away in 2010 anyways, it’s something to consider.
For example, in 2005 I made too much to fully fund my Roth (phase out) but I’d be making less than $100K MAGI (salary - 401k) in 2006, so before April 15th in 2006 I put the excess contribution ...
For the best site that I’ve found to the Traditional-to-Roth IRA conversion process (and more clear than the IRS instructions), see the Fairmark guide. Reading through it, you can see there are a ton of variables to consider, including evaluating your current situation and predicting future legislation. Here’s a summary of my decision process after reading the guide:
Am I Allowed To Convert?
My main concern was the income limits. No matter if you are single or married, your total combined modified adjusted gross income (MAGI) cannot be over $100,000. The definition of MAGI is pretty confusing - either read Pub 590 or better yet Fairmark again for the details. But one way to lower your MAGI is to make contributions to your employer’s retirement ...
Taxes are always confusing, and marginal tax rates are no exception. Although I am no accountant, here are some clarifications on how to use the 2006 tax bracket table I just posted.
First, it should be noted that it is for taxable income, not gross income. In very broad terms, taxable income is your gross income minus exemptions and deductions. Everybody has at the the standard deduction ($5,150 for single taxpayers and $10,300 for married taxpayers filing jointly for 2006), and many people have more from things like mortgage interest and state income taxes. But remember, gross income also takes into account interest and capital gains from selling investments. So estimating your actual taxable income without actually filling out a 1040 form can be ...
I keep having to look these up, so here are the tax brackets for 2006.
Marginal Tax Rate[Taxable Income] SingleMarried Filing Jointly10%$0-$7,550$0-$15,10015%$7,551-$36,650$15,101-$61,30025%$36,651-$74,200$61,301-$123,70028%$74,201-$154,800$123,701-$188,45033%$154,801-$336,550$188,451-$336,55035%> $336,550> $336,550
For comparison, here are the 2005 tax brackets. Taken from IRS.gov. For state income taxes, this site is the best resource that I could find.
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29 states and the District of Columbia offer a tax deduction or credit for residents who contribute to their state’s 529 plan. Here is a list of them all. If you’re working your way through school, you should definitely try to take advantage of these benefits for yourself.
How? It’s easy.
Open a 529 and make yourself the beneficiary.Then, contribute to the plan and get the tax break, using the most conservative option (since you’ll be spending the money soon).Finally, take the money back out of the 529 plan to pay for your college expenses.
You must make sure that it’s okay for the contributor and beneficiary to be the same person. Also, you can’t pay for things with a 529 distribution that you want to use ...
It’s open enrollment season again, which means it’s time to decide on your benefits and spending account contributions. PayCheckCity has a variety of tools for simulating what your take-home pay would be if you added disability insurance, increased your FSA amount, and so on.
It can also be a good time to check your paystubs and see if you want to make any other changes. Maybe you want to increase your cashflow, or see if you can afford to put more away in your 401k. You can also check if you’ve already paid as much taxes so far this year as you did last year. If so, you could underwithold taxes on purpose and stick the difference in an interest-bearing account to make a few ...
Now that I've mentioned tax avoidance, one potential advantage of incorporating your business into an S-Corporation is the ability to reduce the Social Security and Medicare taxes that you pay. I'm going to stick to using examples of one-person businesses.
Simple Example
Here is a simple example. Let's say you have two self-employed people, Sam and Carrie, who are both freelance photographers. Their businesses make the same net profits of $60,000 last year ($5,000/month). The only difference is that Sam is a Sole Proprietorship and Carrie is an S-Corporation.
I was browsing the library a few months ago, looking for some accounting books, when I came across a book entitled Keep Your Hard-Earned Money: Tax-Saving Solutions For The Self-Employed. It was clearly a bit dated, as it boasted about 'including the 1997 tax law changes'.
Now, if you are looking for a book about aggressive tax-reducing tactics that skirts right on the edge of the legal vs. illegal (and hints past it), then this is your book. How it saves you money is by helping you "convert everyday living expenses into business deductions". The motto of this book is "When In Doubt, Deduct". We're talking vacations, last night's dinner, everything. I definitely wouldn't feel comfortable doing some of the stuff in this ...
