Saving Money
Taxes: Save Money, Solve Problems
Taxes take a big bite out of most American’s budgets. In fact, they are the largest
single expense for many of us.
To help Americans understand how much we pay toward taxes, the Tax Foundation announces
a “Tax Freedom Day®” each year. This is the date by which Americans’ average earnings
equal their annual federal, state and local tax bills. In 2004, it was celebrated
on April 11th. That means for the first three months of the years, the average American
was working just for Uncle Sam! According to the Tax Foundation’s research, Americans
will work more days to pay taxes than they did to pay for food and shelter combined.
In addition, many people probably pay more taxes
than they need to. A study by the Government Accounting Office found that missed
deductions and credits resulted in more than 2 million Americans overpaying their
taxes by approximately $945 million in 2002, an average overpayment of more than
$400 per taxpayer!
At Consolidated Credit Counseling Services Inc. we often hear questions and concerns about taxes from the consumers we counsel. This brochure covers five tax topics that come up frequently:
- Saving Money on Taxes
- Lending Money to Uncle Sam (through refunds)
- Rapid Refunds
- Taxes and Settled Debts
- When You Can’t Pay the IRS
Getting organized and keeping good records are the two keys to
making tax time less
painful and expensive. If you haven’t already done so, start a file and notebook
where you can keep track of your income and expenses. If you only receive income
through one job and your employer withholds taxes, this will be easier. Still, it’s
a good idea to keep copies of your paystubs in case of any problems later on.
Always write down tax deductible expenses immediately, the same day you incur them.
Otherwise, you’re likely to quickly forget about them. Keep records and receipts
of any items you may be able to deduct.
Scott Estill, former tax attorney and author of Tax Secrets of Millionaires, recommends
you include five pieces of information in your records:
Answering these questions will usually give you the information you need to explain any items that may be questioned by the IRS.
Many people fail to take legitimate deductions because they are afraid it will result in their being audited. In fact, your best defense is to keep good records, check your returns carefully, and make sure you get good advice about legitimate deductions. But overpaying your taxes won’t protect you against an audit.
Here are some commonly overlooked deductions:
Charity - You may be able to deduct the value of items you give to charity, cash donations, as well as mileage for time spent driving in volunteer work for a qualified charity. If you donate goods to a charity, ask for a receipt. Expensive or large items should be independently appraised to establish their value.
Moving Expenses - You may be able to deduct moving expenses if you moved at least 50 miles from your old home, either for your current job or for a new one.
Job Expenses - The cost of education to maintain or improve skills in your current profession may be deductible. Jobrelated expenses such as union dues, uniforms, professional journals, dues paid to professional associations, unreimbursed business expenses, a cell phone used for work, and work tools may all be deductible -- though some will only be deductible to the extent they exceed 2% of your adjusted gross income.
Job Hunting Expenses - You may be able to deduct the expenses associated with looking for a job. Resume preparation and photocopying, postage, employment agency fees, long distance telephone calls and even mileage spent driving to job interviews may be deductible. Interest - You generally can’t deduct credit card interest except on a business credit card. But you usually can deduct interest on a mortgage or home equity loan. Student loan interest is also often deductible. If you buy a home or refinance it, part or all of your points may be deductible as well.
