How to make filing taxes less taxing this year

You just downloaded the latest update of TurboTax or received your notice from your CPA, and you can hardly wait to shuffle through last year’s statements and receipts and start on your taxes. Right?

If not, you may benefit from these time and money-saving tips – ways to make the filing process friendlier to both the environment and your bank accounts this year and next.

Collect documents now

If you wait until the last minute, chances are you’ll be too stressed out to take the time to find valuable deductions. Organize your tax statements and receipts in folders, separate your business, real estate and personal expenses, and gather proof of donations to charity.

Planning tip: Donate with credit cards so your receipts are recorded automatically.

Consider e-filing

Besides the obvious benefit to the environment, e-filing can also make your life a lot easier. According to the IRS, e-filers who choose direct deposit can receive their refund in as few as 10 days. Taxpayers can also decide to file now and have their taxes debited later, up until the April 15 deadline. Since additional checks are built into the software, the returns are more accurate which in turns helps reduce the possibility of an error letter from the IRS.

Planning tip: Check to see if your adjusted gross income allows you to take advantage of IRS Free File.

Determine if you owe AMT

An increasing number of upper-middle-income earners (making between $150,000 and $400,000) are finding themselves subject to the Alternative Minimum Tax, which sets a minimum tax of 26 percent to 28 percent (depending on the taxpayer’s “alternative minimum taxable income”) and disallows certain types of deductions to reduce their tax.

The Tax Increase Prevention Act of 2007 increased the AMT exemptions, which should help spare the estimated 19 million individual taxpayers from being subject to the tax this year and reduce the tax burden for the over 4 million filers who will still be forced to pay it, according to the American Institute of Certified Public Accountants.

To determine if you are subject to AMT in 2007, go to the IRA Web site and follow the instructions in the 2007 Form 1040. Be sure to use this year’s instructions, since the legislation is so new.

Planning tip: To help avoid the AMT, lower your AMT tax-preference items, such as state income and local real estate taxes, for any one year.

Contribute to your IRA

You have until April 15 to make your $4,000 contribution ($5,000 if age 50 or older) for 2007. In 2008, you’ll be able to raise that contribution to $5,000, or $6,000 if you’re over 50. This holds true for both Traditional and Roth Individual Retirement Accounts, provided you meet the eligibility requirements.

If you own your own business, you may also consider setting up and funding a SEP IRA for 2007; the deadline is also April 15 unless your tax filing deadline has been extended. April 15 is also the last day you can contribute to your HSA for 2007.

Planning tip: Consider setting up automatic deductions to fund your retirement vehicles throughout the year, which may be especially beneficial during the volatile time in the market.

Look into tax issues for seniors

Whether it’s for you or your parents, realize that there are certain tax issues to consider. Depending on the amount of income, there may be taxes owed on Social Security benefits, pensions, annuities, IRAs and 401(k) plans. Property taxes may still have to be paid as long as you still own your home, although many states offer “homestead exemptions” and “circuit-breaker credit” for older homeowners. Last, if you’ve hired a caregiver for your spouse or dependent parents and are still working, there may be additional tax benefits for you.

Planning tip: With respect to Social Security, check to see if it may be more beneficial to delay receiving your benefits, especially if you continue to work longer than the “normal” retirement age.

Rachel Lane, CFP is an Investment Advisor Representative of Financial Network Investment Corp. and co-owner of LL Financial Group in Loveland. She can be reached at 970-613-1553 or laner@financialnetwork.com

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