Monthly Archives: March 2011

The 5 Top Tax Deductions and Credits

Written by in Taxes
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The following is a post from staff writer Crystal at Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future, and budgeting in the fun stuff along the way.

Tax time is coming fast and you may be looking for some ways to lower your taxable base income. I know we were! This can be done by taking advantage of every single tax deduction and tax credit that you possibly can get.

Here are the top 5 tax deductions and credits that you may qualify for:

Education Tax Credits

The American Recovery and Reinvestment Act has made provisions for higher education credits for people going back to college. It is known as the American Opportunity Tax Credit and it pays up to $2,500 for the first four years of college. Anyone with an adjusted gross income below $80,000 is eligible for this student loan tax credit.

If you are going back to school to earn a graduate degree, take a look at the Tuition and Fees Deduction and the Lifetime Learning Credit. We were able to save us a couple of thousand dollars through the Lifetime Learning Credit ”thanks” to my husband’s 2010 graduate school expenses.

Capital Gains Taxes or Investment Losses

Taxes on your capital gains are usually lower for most investors than their income tax rate. The average capital gains tax rate is just 15% on investments held for more than one year. The reduced capital gains tax rate can save the average taxpayer a lot of money.

If you actually lost money on your investments instead, remember to declare those losses on your taxes too. You can also claim losses from real estate or theft.

Charitable Contributions

Some people fail to take advantage of all of the deductions they can get from donating money to charity. Contributions to churches, not for profits, and other recognized charities can shave hundreds or thousands of dollars off of your tax burden. It’s not only the cash contributions that qualify. Cars, clothes, food, and supplies donated to charity qualify for a deduction too. One thing to keep in mind though is that all of your deductions will need to add up to more than your standard deduction before itemizing will make sense.

Retirement Deductions

Remember that any money that you contributed to your 401(k) or a Traditional IRA will lower your overall taxable income. People with moderate incomes and lower income individuals get a dual benefit as well since they get the normal taxable income reduction and are eligible for a retirement tax credit as well.

Medical Expenses

Did you have a major operation during the year or incur some other major medical expense? You can take a tax deduction for any medical expenses that exceeded 7.5% of your adjusted gross income. Self-employed business owners can go ahead and fully deduct all of their health insurance premiums.

What other tax deductions or credits should we all keep our eyes open for? I remembered to keep up with all of my blogging expenses, which helped offset the taxes on my overall profits a bit. Did you have something similar to deduct Anything we may all want to keep in mind?

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Do You Cheat On Your Taxes?

Written by in Taxes
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Don’t tell me if you do, I’m going to assume that all Sweating The Big Stuff readers are trustworthy and report all income and only qualifying expenses to the IRS.

Many other people try to avoid paying their taxes. In fact, in a recent study, DDB WorldWide Communications group found that 15% of Americans admitted to fudging their taxes. I assume that the actual number is a bit higher, because not everyone admits their mistakes, especially if they’re on purpose.

In the same survey, it’s clear that there’s a certain portion of society that is more likely to cheat. Here are a few quick stats:

  • 64% of cheaters were men
  • 47% of cheaters were single (including divorced or widowed)
  • 55% of cheaters were under the age of 45
  • These percentages were all significantly higher for the self-proclaimed cheaters than for non-cheaters

What Are Possible Outcomes?

On average, the IRS audits just over 1% of all taxpayers. However, they audit 12% of taxpayers who make over $5 million and a whopping 18% of taxpayers who make over $10 million. Clearly they’re targeting the rich!

If you think about it, this makes a lot of sense. Assuming that they have to spend the same amount of resources auditing someone who makes $10 million and someone who makes $100,000, the IRS is probably going to recoup more money from the person making $10 million. For the same amount of work, why not go after the ones that will net a higher return?

And guess what? It’s working! The IRS collected $57.6 billion from auditing last year, a jump of 18%!

Similarly, if these results hold up and the percentages mentioned above are significantly higher, then it makes sense for them to target single men under the age of 45. After all, they’re more likely to catch a single man under the age of 45 than anyone else.

I would not at all be surprised if the percentages of tax returns of single men under 45 that were audited increased in the coming years. While it may not have the impact of auditing high income earners, it does make sense to divert some attention away from those less likely to cheat to those who are more likely to cheat.

Readers, do you think targeting single men under 45 is a slippery slope? Should the IRS use more resources on those more statistically likely to cheat?

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Why We Must Learn From Our Mistakes

Written by in Insurance, Money Stories
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Fool me once, shame on you. Fool me twice, shame on me.

Everyone makes mistakes. Nobody’s perfect. But the people who will come out ahead are the ones that learn from their mistakes and take that knowledge and use it the next time. Here’s my unfortunate story of how I was duped by my insurance company and how I can learn from the experience.

I was able to get vision insurance through work this year, so once January 1st rolled around, I looked at the insurance information and picked an eye doctor. In fact, I chose one of the first ones on the list of participating practices because it happened to be very close to my apartment.

I knew that my eye exam would be covered, so I went in, got the eye exam plus a few extras and expected to pay about $30. They took my insurance card, and the total bill came out to $90. I figured it was just a mistake and that my insurance information hadn’t been entered, so I asked and they said that the insurance did take off $30. So I had to pay, disappointed.

As soon as I got home, I called the insurance company to ask what was going on. Wasn’t I entitled to a free eye exam?

Well, sort of. I had to use someone in their very specific network. Nowhere on their information packet does it say that. In fact, under ‘In-Network Participants,’ the practice I chose was on the list, so I naturally assumed that I would be covered by going to an in-network provider. Nope, I was wrong, and suddenly I was out $60.

I would have loved to get that $60 back, but I knew it wasn’t going to happen. I argued but their policy is their policy, and Davis Vision is just a little shady in my book. And the people at Hour Eyes are pretty dumb too, but that’s ok.

Learning A Lesson

I lost $60 and that’s something I’ll have to live with. That money is not coming back. But I did learn a lesson. I should verify with my insurance company what providers will be fully covered and which will look covered but aren’t really. I should also check how much the service will cost beforehand even if I think I’ll be fully covered. By taking all of my small lessons of how I lost a few dollars here or there, I can prevent them from happening in the future. While they happen every day to lots of people, I won’t be giving away money because I learned my lessons many years earlier.

When we’re young, we’re going to make mistakes, and hopefully the damage is minimal. What’s important is that we need to learn from those mistakes and be sure not to duplicate them.

Readers, what lessons have you learned and vowed not to repeat?

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Best of the Rest: TurboTax Deluxe Winners Edition

Written by in Best of the Rest
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Thanks to everyone who entered the giveaway! Since I love giving away tax stuff and I ended up getting an extra code that I wasn’t expecting, I’m increasing the giveaway from 2 to 3 winners. Congrats guys!!

Celeste
Roksana
Noah

I’ve contacted the winners and hopefully they’ll have a great experience using TurboTax!

How Much Would You Pay To Find Love? (via Thousandaire)

Thoughts on Wealth and Reaching the Crossover Point (via Five Cent Nickel)

Canceling My Cell Phone Insurance (via My Journey to Millions)

Who’ll Win The Merchant Debit Card Fees Debate? Banks vs Retail (via The Digerati Life)

People Aren’t This Stupid, Are They? (via Darwin’s Money)

10 Ways to Lose Your Job Using the Internet (via Moolanomy)

Why We Should Abolish The Penny And Save Billions (via Redeeming Riches)

This week I was included in the Carnival of Personal Finance hosted by Fiscal Fizzle.

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