Little-Known Ways to Make the Most of Taxes!

Matrix Direct Newsletter - March 2012

As Tax Season reaches high gear, Matrix Direct has put together some little-known tips on taking appropriate deductions, avoiding audits and getting your refund faster! 

Feeling Short Changed? Check Your Deductions

When it comes to taxes, no one wants to shuck out more than their share. Matrix Direct wants to help make sure you don't! 

Standard Deductions versus Itemizing: Don't Leave Money on the Table

Everyone is entitled to lower their potential tax burden by taking the standard deduction allowed by the IRS or by itemizing deductions. About two-thirds of tax payers take the standard deduction, according to the IRS.1 
If you take the standard deduction, you might be paying more taxes than you should. 

Add up your deductible expenses and compare the total to the standard deduction below. You might want to itemize if your expenses exceed:

  • $5,800 for singles and married individuals filing separately.
  • $8,500 for heads of household.
  • $11,600 for married couples filing jointly.

Another reason to consider itemizing? The itemized deduction limitation was repealed for 2011 (through 2012). So you can deduct the full amount.

Deductions worth investigating

There's a wide range of deductions you might be eligible to take. Among them are mortgage interest, state and local taxes, and charitable donations. But don't overlook the potential to write off tax-preparation fees, mortgage insurance, expenses for job hunting, professional dues and business-related car expenses. If you're a teacher, you might also be able to write off some classroom supplies you purchase.

For a full list of potential itemized deductions and an article on whether or not you should itemize, visit the IRS website at  http://www.irs.gov/taxtopics/tc500.html

Give yourself some credit!

In addition to itemized deductions, you might also be eligible for a fine array of tax credits. These are great, because they lop off a set amount, as opposed to being based on your tax bracket. Some credits available:

  • Child Tax Credit
  • Child and Dependent Care Credit
  • Retirement Savings Contributions Credit
  • Earned Income Tax Credit
  • Energy and Appliance Tax Credit
  • College Costs (and Additional Education Credits)

For more information, visit "Don't Overlook These Valuable Tax Credits" on the IRS website at  http://www.irs.gov/newsroom/article/0,,id=177051,00.html

Steering Clear of Audits: IRS "Red Flags"

The prospect of an IRS audit can be chilling. But if you're honest, turn in an accurate return and have solid records, an audit shouldn't prove to be anything more than an inconvenience. Still, no one wants one! Here are some common red flags that can trigger an audit.1

Failure to report taxable income. This one's a no brainer. The IRS receives copies of your W-2s and 1099s, so if you neglect to report income, the mismatch will alert the IRS to a discrepancy.

Home office deductions. If you're entitled to a home office deduction, by all means, take it! But this deduction is often abused (for example, writing off an entire bedroom because you sometimes check work emails on your computer). The office must be dedicated space, used regularly and exclusively as a principal place of business.

Claiming a vehicle 100 percent for business. Let's face it. Most of us don't have a vehicle dedicated 100 percent to business. The IRS knows this, so claiming 100 percent business usage could raise eyebrows. Take any deductions you're entitled to, keep documentation, and avoid any temptation to exaggerate.

Charitable donations. If your donations are disproportionate to your income, it doesn't compute (even if you really were that generous!). Get appraisals when donating property, take photos, get receipts, and be sure to file Form 8283 for financial donations over $500.

Travel, entertainment and business meals. Here's another squishy category that's been abused in the past, so the IRS keeps an eye on it. To qualify for a deduction, keep records of the place, people, discussions and meeting's business purpose. Keep in mind that if the amount seems too high for your type of business, it could sound the alarm.

Easy Money: The Fastest Way to Get a Refund

According to the IRS, the fastest way to get your refund is to file electronically and request direct deposit. How fast will the money fly? About 10 days. Otherwise, you may wait about three weeks. The IRS says that they issue about 90 percent of refunds within 21 days. If you mail a paper return, the process is slower. In fact, you won't be able to even check up on your return for four weeks.

You can check the status of your refund beginning 72 hours after you file online (again, it's four weeks if you mailed it). Visit "Where's My Refund?" on the IRS website, or call their toll-free hotline at 800-829-1954. You'll receive an estimated refund date.

Tired of taxes? Consider term life insurance! 

One of the major advantages of term life insurance is how Uncle Sam gives it an income tax-free pass. According to current tax laws, any term life insurance money paid to your beneficiaries will not be subject to federal income tax. They get the entire amount!

This is especially important starting this year, because the estate tax returned in 2011. In other words, assets left to your beneficiaries can be taxed.

If you've been considering a policy or have one and want to review it, now is an excellent time to call one of our helpful agents.

 


Sources:
1 "IRS Audit Red Flags: The Dirty Dozen," Joy Taylor, The Kiplinger Tax Letter - November 2014
http://www.kiplinger.com/slideshow/taxes/T056-S001-irs-audit-red-flags-the-dirty-dozen-slide-show/index.html

 

Matrix Direct and its representatives do not offer medical, health, tax, financial or legal advice. Individuals should discuss the advantages of life insurance with their tax, financial or legal advisor(s). 

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