Deductions Help You Get Breaks You Deserve
Let's put an end to that. I've compiled a list of deductions, credits and strategies that could help.
Find yourself below and watch your savings add up.
You are not making as much as you used to. Your lower income could allow you to convert to a Roth Individual Retirement Account from a traditional IRA. The rules say you can only convert if your adjusted gross income is less than $100,000 (you have until the filing deadline to do it).
The benefits can be huge. Say you're 50 and the value of your IRA has plunged. You could let the money stay in the account, wait for it to rebound—as we know it will eventually—and grow until you're 70 1/2 and are forced to take distributions at your current tax rate.
Or, you could pay taxes now at your current rate (which is lower if you didn't have an especially profitable year), and never pay taxes on the money again. If you prefer, you don't have to convert your entire IRA. One downside to a conversion: You can't touch the Roth money for five years.
You own a business. You may have fallen into the trap of thinking money from selling one day is your retirement kitty. Big mistake, said Barbara Weltman, author of J.K. Lasser's 1001 Deductions and Tax Breaks 2008.
"You may be so critical that there is no business without you. Plus, you are missing a huge opportunity to shelter income in one of several retirement accounts," Weltman said. There are several options. A defined benefit plan—a self-funded pension—will pay you income in retirement.
A solo 401(k) is another good choice. Keogh plans (if you have employees) and Simplified Employee Pension plans (if you don't) are also on the menu, but at the very, very least you should put $5,000 into an IRA or a Roth.
You're a business owner who's not diligent about receipts. Fear of the audit police leads many people to overpay. "They don't have the paperwork and receipts, so they don't take what they're entitled to," Weltman said. "It's absolutely worth the trouble."
You are reinventing yourself: Education breaks are among the most missed. Check out the Lifetime Learning Credit and the Tuition and Fees deduction. If you're improving your work skills or job hunting in the same field, you may also be eligible to claim deductions.
You want to pass assets to your kids: The depressed stock market makes it a very good time to give away money. You can give up to $12,000 a year to any person you like (a couple can give $24,000) without running into lifetime gift restrictions or gift tax.
You filed early. Congress is notorious for making changes that don't make the preprinted forms. Keep your eye on the newspaper and check out the IRS' surprisingly readable website at IRS.gov.
Are your taxes already filed? Learn how to make the most out of next year's refund.