Doing your taxes is not as easy as ABC, but these alphabetical tips could make the process less difficult and save you some money, too. Here's the start of some A-to-Z tax opportunities to take or pitfalls to avoid.
Above-the-line deduction -- This special group of deductions is a great time- and money saver for many taxpayers. Not only do you get to deduct things, such as alimony paid, some college costs and some financial account penalties you paid, you don't have to mess with Schedule A and itemizing to claim them. Technically, they are adjustments to your income. They help reduce your total earnings to the amount upon which you ultimately figure your tax bill -- your adjusted gross income, or AGI. The lower your AGI, the less tax you should owe. And the name? These dozen or so deductions are at the bottom of Page 1 of the long Form 1040, just above that page's last line, so they are literally "above the line."
Basis -- Before something can be taxed, you (and the Internal Revenue Service) must know its basis, or what it's worth. Basis, which also is sometimes referred to as "cost basis," comes into tax play when you sell an asset and you must determine if you owe any taxes on it. You get to adjust the asset's basis, taking into account, for example, improvements and depreciation in the case of real property or transaction fees and previously paid taxes in the case of stocks or mutual funds. Figuring your correct basis is critical. Mess it up and you'll come up with a basis that's too low, and that means a bigger tax bill than necessary.
Casualty loss -- No one ever wants to suffer damage to their property. When it does happen, you might be able to at least get a bit of tax help from Uncle Sam. It doesn't matter whether your loss is caused by a natural disaster, such as a hurricane, earthquake or flood, or at the hands of a thief or vandal. They all count as casualty losses as long as they're sudden, unexpected or unusual. By itemizing your taxes, you might be able to write off a portion of your damage amount on your taxes.
Dividends -- These investment earnings are a great way to save for retirement or come up with a little extra spending money. The bad news: Dividends are taxable income. The good news: Thanks to a legislative change a few years ago, they are now taxed at a lower rate. In cases where the dividend payments meet IRS guidelines, they are taxed at 15 percent (or possibly just 5 percent for some lower-income investors) instead of your ordinary tax rate, which could be as high as 35 percent. When you get your account's year-end tax statement, it will tell you whether any dividends qualify for the lower 15 percent rate.