Income Taxes

There is much more to income taxes than filling out the forms. People who are know a few income tax rules and engage in some simple tax planning have a big advantage. Do you?

Most of us dread the April 15th deadline, even though doing your taxes should be much easier these days. Today there is inexpensive income tax return preparation software as well as businesses that will prepare your income tax returns for you quickly and cost-effectively. However these tax preparation solutions will not strategize for you or help you make decisions throughout the year.

Knowledge of just a few income tax rules, plus some simple income tax planning can be a great way to save additional cash without having to work any harder. Whether you're preparing your own income tax return and have a question, or you're wondering what the income tax implications are to a decision, knowing the answer can help you save money. While overall economics is always the primary driver in making any financial decision, income taxes play a role in that decision. In many situations income taxes are a significant factor that can be the make-or-break component in making a decision.

Some general income tax themes you should consider:

For filing 2010 taxes if you are single and have more than $5,700 or if you are married filing jointly and have more than $11,400 in deductions, then you should consider itemizing your deductions. If you do itemize then here are some additional things to consider:

  • Housing Related Expenses (mortgage interest & property taxes).
  • Charity.
  • Medical Expenses if over 7.5% of your AGI which is line 37 on your 1040 form.

Commonly asked questions

The Alternative Minimum Tax—original intent of this tax back in 1969/1970 was to get wealthy taxpayers who claimed a lot of deductions to pay a minimum tax regardless of their income level and allowable deductions relative to that income. The tax is calculated in parallel with your regular income tax calculation and unfortunately has been subjecting more and more people to the AMT tax each year. In 2010, it is estimated to impact approx. 30 million filers who are mostly married and have incomes between $75,000 and $100,000.

Commonly asked questions

Running a business is a large enough undertaking, never mind having to think about the tax impact. It would be incredibly helpful for you to understand at a base level what types of deductions you can qualify for while running your business and just as important, what items are not deductible so that you keep the IRS from knocking on your door.

Commonly asked questions

Maximize your contribution to your 401K, IRA or other retirement plan to reduce your income taxes.

There several different opportunities to either reduce your income taxes or to save money in a tax-free account that is tied to education savings—for you or your children.

If you have had a good year and have made money on your investments, you should consider selling some of your underperformers to have the loss offset your gains. Of course, the total economics of your situation should drive this decision.

Fin Tip

I just received a big tax refund. This is good, right? Not exactly, although, many of us hope for a refund, you are more tax efficient if you have to cut a check at the end of the year (that is one that doesn't include any penalties). Because what that means is that you hopefully have been putting your money to use instead of letting Uncle Sam use your money interest free!