18 Thursday, March 27, 1997 Pahrump Valley Gazette
Count down to T-day April 15...
As tax time rapidly approaches, one tries to find some humor in the seriousness of the annual collection of our
taxes. After 1,683 years of taxation, in one form or another, The Chicago Tribune has culled some moments of
humor that may help with a smile or two during the midnight hours of tax preparation. For the more serious
side of the taxing trauma the editors hope that Tax 7ps 1997 will be of some assist
20 essential but frequently overlooked tax savings opportunities
Certain deductions, credits and tax "elections" are frequently overlooked, costing you many dollars in extra
taxes. Here are 20 common ones. (A tax election is a choice you make on your return that affects the amount of
taxes you will have to pay. Your choice of filing sta-
tus is one example)
1. Single parents may file as head of house-
hold-- If you were single at the end of
1996 and had a dependent child (or other
dependent) living with you for at least half
the year, you may qualify for lower tax
rates by claiming "head of household" as
your filing status rather than "single."
2. Widowed spouses may still enjoy mar-
ried-filing jointly rates. If your spouse
died in 1994 or 1995, and you have a de-
pendent child living with you, you may
file as a "surviving spouse" and be taxed
at "married-filing-jointly" rates (which
you may graduate to in the third tax year
after your spouse dies). If your spouse died
in 1996, you still may file as married.
3. Claim parents as dependents- If you fur-
nish more than half of the support of your
parents, you may be entitled to claim them
as dependents on your return. (If you fur-
nish less than one-half, but the combined
support given by you and your siblings ex-
ceeds one-half, you may be able to arrange
to designate one of you as eligible to claim
the deduction.)
4. Additional standard deduction if you are
blind or 65 or older - If you are unable
to itemize and you are blind or 65 years of
age or older, you are entitled to take an
extra $800 (or $1,600 if both blind and (65)
above the normal standard deduction for
your filing status.
5. Most of your Social Security may be tax
free---Social Security is tax free unless
you have other income that puts you into
the mid to higher income brackets. Then a
portion of it may be taxed. So, be sure to
treat your Social Security benefits as sepa-
rate from other income.
6. Earned income credit--This credit is
available if your "earned" income is low.
Investment income, Social Security and
other income does not count. If you earned
less than $25,078 and have one dependent
child ($28,078 for more than one child and
$9,500 with no dependent children), you
may be entitled to the credit.
7. Contributions to IRAs--You may be en-
titled to deduct up to $2,000 for contribu-
tions to an individual retirement account
(IRA). And you may still do this up to April
15. (If you are part of an employer-spon-
sored retirement plan and your income ex-
ceeds certain limits you may not get this
deduction.)
8. Collect overpaid Social Security tax if you
worked for more than one employer - If
you worked for more than one employer,
each took Social Security taxes out of your
paycheck based on what they paid you. If
your combined income exceeded $62,700,
you overpaid. You may claim a refund of
the excess on your return.
9. Employee education--If you took courses
to improve your skills in your line of work
you may be able to deduct them. Education
to go into a new line of work is not deduct-
ible.
10.Home business expenses - If you run a busi-
ness in your home, you may be entitled to
deduct the cost of your office and equip-
ment. Special rules apply to prevent you
from deducting personal expenses, but you
shouldn't forego legitimate deductions be-
cause of this.
11.Health insurance for self-employed - Em-
ployees can receive health insurance from
their employers tax free so self-employees
may deduct 25 percent of their health in-
surance premiums "above the line." This
means that you get the deduction even if
you can't itemize.
12.Half of self-employment taxes are deduct-
ible - Another attempt to put the self-em-
ployed on an equal footing with employees
is the deduction for half of your self-em-
ployment tax (Social Security tax). You pay
the self-employment tax, but deduct half of
the amount from your income.
13.Disasters and other causalities or theft -
If you had one of these losses in 1996, be
sure to claim a deduction.
14.Don't report state tax refund as income if
you took standard deduction- State taxes
are deductible, but if you get a refund you
usually have to report state tax refunds as
income. This rule does not apply if you
didn't get a "tax benefit" from the taxes that
were refunded to you. This means that if
you took the standard deduction in the year
you would have deducted the state taxes,
you don't have to report it when you get
the refund.
15.Don't overlook medical expenses - Of
course you may deduct insurance premi-
ums, doctors' fees hospital expenses, as long
as they were not covered by insurance. But
did you know that you may deduct for items
that are not normally covered by health in-
surance, such as glasses and transportation
and lodging related to out-of-town medical
procedures?
16.Don't pay the nanny tax if you don't have
to - If you have a household employee
whom you paid more than $1,000 in 1996,
you are required to pay their Social Secu-
rity tax (Schedule H of your 1040). This
was in the news a lot in recent years and the
law was changed to establish thee $1,000
mark as a "reasonable" place to start col-
lecting this tax. With the new limits, the IlLS
is in a position to actually enforce the law.
But don't pay this if you don't have too. If
you are paying someone who is under the
age of 18, it's not required. And it's not re-
quired if you are going through an agency
and the worker is technically employed by
the agency.
17.Mutual funds-Mutual funds make different
kinds of distributions during the year (which
they report to you at year's end). Don't make
the mistake of treating capital gains distri-
butions as the same as dividend payments.
Capital gains distributions may not be taxed
at more than 28 percent. If you are in a
higt/er bracket for ordinary income, the mis-
take could cost you.
18.Take advantage of lost deductions from
other years - If you lost out on some de-
ductions last year because your taxable in-
come was not sufficient to absorb them all
(or other technical reasons), you may be
able to use them this year. Don't overlook
the possibility. Business losses, investment
losses and charitable contributions are all
items that may be "carried over" to later
years if they are not fully used for the year
they occur.
19.You can deduct investment fees - Check
to see if you can deduct fees for financial
planning, investment advice, subscriptions
to investment publications, custodians, safe
deposit boxes and other items related to your
investments. You need to exceed 2 percent
of your adjusted gross income (together
with job-related expenses and other miscel-
laneous deductions) to qualify for this de-
duction. But the more you find, the more
likely it will be that you will be able to de-
duct. These go on Schedule A.
20.Remember to deduct return preparation
fees - Finally, whatever you paid to have
your tax return prepared last year also is de-
ductible. This belongs in the same category
as item 19, but I thought I'd mention it sepa-
rately so that you will feel a little better
when you dish it out again this year.
EDITORS NOTE: Stephen D. Froiden has been
writing about taxes and personal finance since
1984. He has written many tax guides focusing
on families, business, expenses, benefits, and es-
tate planning, real estate and year-end strate-
gies. Froikein recently designed and produced
IRS Hot Buttons, a multimedia CD-ROM on the
subject of federal tax audits (available from
CCH Incorporated) Hot Buttons was named
Editor's Choice by Accounting Technology
magazine in its August 1996 issue.
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