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Resolution 9: Cut your taxes
Some people regularly overpay their tax bill -- how to make sure that is not you.
December 13, 2005: 11:40 AM EST
By Tracy Byrnes, MONEY Magazine
Do it now: 10 resolutions

NEW YORK (MONEY Magazine) - Americans routinely let many valuable tax breaks go unclaimed. For instance, a 2002 government study found that up to 2.2 million taxpayers overpaid, by an average of $438, because they claimed the standard deduction instead of itemizing.

Here's how to hold on to what's yours.

1. Invest in an accordion file

Many taxpayers may have settled for the standard write-off because they didn't have the proper backup for deductions. The answer: Get a shoebox or large folder, and as soon as you get any document that might be useful at tax time, throw it in. Include:

  • Your real estate tax bill and mortgage interest statement
  • Receipts for charitable contributions and unreimbursed business expenses (including travel and entertainment costs)
  • Brokerage statements documenting investment losses.

2. Take the write-offs

If your deductible expenses exceed the standard deduction that the IRS allows -- $10,000 for joint filers for the 2005 tax year -- it's probably worthwhile to itemize. In addition to biggies like mortgage interest and property taxes, you may be able to deduct:

  • Investment costs such as IRA and brokerage account fees
  • Job-hunting expenses, plus dues to professional associations
  • Tax advice fees, plus the cost of preparing your return.

If itemizing seems too hard, buy software like TaxCut or TurboTax (cost: around $30), which does everything but hold your hand as it walks you through the process. Or hire a pro to itemize for you.

3. Maximize pretax savings

No move will save you as much as funding tax-advantaged savings vehicles and flexible spending accounts. If you have an effective tax rate of, say, 33% and put $10,000 a year in a 401(k) and $5,000 a year in an FSA, you'll pay $5,000 less come April 15.

Plus, it's easier than ever to use FSAs since many health insurers now report your out-of-pocket costs directly to plan administrators, which then reimburse you with no further paperwork.  Top of page

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