It’s that time of year again to think about taxes. I decided to start by looking through the latest copy of The Ernst & Young Tax Guide 2007, which I receive from the publisher a few weeks ago to review. I’m kind of excited about having the guide in hand, because in the past I’ve always gone to my local library to used it when I ran into some questions while doing my taxes. Inevitably, some would already have the guide checked out and I would have to spend several hours waiting around the library. With the rise of online Sacramento tax preparation software, many people have started filing their tax returns themselves. While it’s certainly possible to do your taxes yourself, there are some risks that you need to consider. If you provide incorrect or incomplete information on your tax return, it can cost you hundreds or thousands of dollars, as well as subject you to fines.
As I’m starting to thumb through this giant tome, the first thing that has caught my eye is a list of the 50 most easily overlooked deductions. Some of the deductions that look useful include:
- Accounting fees for tax preparation services and IRS audits
- Amortization of premium on taxable bonds
- Cellular telephones
- Depreciation of home computers
- Fees on safe-deposit box to hold investments
- Foreign taxes paid
- Margin account interest expense
- Mortgage prepayment penalties and late fees
- Penalty on early withdrawal of savings
- Subscriptions to professional journals
- Worthless stock or securities
A couple of tips for investors also stand out. The first one involves foreign dividends. The Guide states, “Don’t report the net amount on your tax return. Instead, you should report the full amount of the dividend (before withholding) and claim the foreign tax withheld either as a credit or as a deduction on your return.”
The second item involves identifying specific shares of stock or bonds sold. Keeping good records on specific lots of stocks or bonds you purchase can save you money in taxes. You can save money by matching shares with the highest basis when you sell in order to minimize the amount of gain you will need to recognize.
This year I might break down and seek professional assistance with my taxes. I started a business this year to support this site. I have concerns about the revenues I earned from the site before I established the business, since I only registered the business in the middle of the summer. I’m stubborn so I’ll probably still do my taxes using TurboTax and then seek professional assistance of an accountant or tax advisor. In the mean time, I’ll be using the Ernst & Young Tax Guide to get educated on the issues I should be aware of as I organize my documents.