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. Check out these tax opportunities to take or pitfalls to avoid.
Enrolled agent -- If this is the year you decide to hand your taxes over to a professional preparer, one of your choices is an enrolled agent. This type of tax pro has a long history; the first enrolled agents, or EAs, started helping taxpayers claim legitimate losses they suffered in the Civil War. Today, they also can help you file your routine return and, more importantly, are officially authorized "agents" who can appear in your place to resolve a dispute with the IRS. Some other tax professionals can accompany you to IRS meetings to counsel you and help explain your tax issues, but EAs can go to these sessions in your place.
Filing status -- Picking the proper filing status could make the difference between owing the IRS or getting a nice tax refund. When you fill out your return, you must choose from one of five filing status options: single, married filing jointly, married filing separately, head of household or qualifying widow or widower. Each one helps determine your standard deduction amount, as well as what additional tax deductions or credits you might be able to claim. Some filers might find they meet the requirements for more than one filing status. In that case, look over exactly what each offers and make sure you pick the one that gives you the best, least-costly, tax return.
Gains -- When you sell an asset and make money on it (after first determining your correct basis that we talked about earlier), you have a gain to report to the IRS. This profit is generally referred to as a capital gain. But just how much in taxes you owe depends on the type of capital gain you recognize, either long term or short term. And the tax laws reward sellers who hold onto their property for a longer period of time. When you sell an asset you owned for more than a year, even just a year and a day is fine, any profit on its sale is a long-term capital gain and is taxed at a more favorable rate: 15 percent for most taxpayers. By contrast, gain on assets you own for a year or less before selling will be taxed at ordinary tax rates, which could go as high as 35 percent. So if you have a choice on when to sell an asset, your patience could pay off at tax time.
Hobby -- You really enjoy taking photographs and are good enough that you've socked away some extra spending money by accepting a small fee for snapping shots at your neighbor's family reunion or a co-worker's wedding. But beware, that money is taxable income -- unless you can find a way to whittle down your net take. One way to do this is turn your hobby into a job. When you make your hobby into a legitimate income-producing effort, tax breaks follow.
IRA -- Most of us have some form of this popular type of retirement savings plan. You can open a traditional individual retirement account, or IRA, favored by some people because they then can deduct their contributions from their taxes. They will, however, have to pay taxes on the IRA money when they take it out at retirement. Other savers opt for a Roth IRA. You can't deduct contributions to a Roth account, but when you make qualified withdrawals from your account, the money won't be taxed. Each type of account has eligibility requirements, primarily based on income and age. With most IRAs, you have until April 15 (or the next business day if the 15th falls on a weekend or holiday) to pick an account and put your money in it so that it counts toward last year's taxes.
Jacuzzi -- Are you still working with a physical therapist to recover from that compound fracture you suffered on the slopes of Aspen? Did your orthopedic surgeon prescribe a whirlpool bath to help that process along? Then you might be able to write off the cost of your new Jacuzzi. Taking all the medical deductions you are entitled to is important because you must come up with an amount that's more than 7.5 percent of your adjusted gross income before the expenses are of any tax use.