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.
Kiddie tax -- This tax is officially known as the "Tax for Children Under Age 18 Who Have Investment Income of More Than $1,700." With a name like that, it's no wonder that it's usually referred to as the "kiddie tax." This provision was created to keep parents from sheltering large amounts of income by putting financial accounts in the names, and lower tax brackets, of their kids. Previously, the parental tax rates, which could be as high as 35 percent applied to the child's investment income until the youngster turned 14. Now the parents' tax bracket is used for children ages 17 or younger; on 2008 returns, a child must be 19 (or 24 if a full-time student who is a parental dependent) before he or she can figure any applicable taxes using his or her lower tax rates. In some instances, an investment plan for your children still might be good idea. Just make sure you understand all the tax implications of your youngster's assets.
Las Vegas winnings -- When you can no longer fight off the lure of Sin City's casinos, just remember that the IRS will share in any of your good gambling luck. Gambling winnings, as well as the value of any prizes you win, are taxable. If your jackpot is big enough, the casino or horse track or lottery agent will take the taxes out first. You'll also get an official tax statement; so will Uncle Sam, so don't try to pretend at tax time that you didn't pocket the winnings. Of course, there's no way for the IRS to track all off-the-book wagers, such as the friendly office pool. Still, you're supposed to report, and pay taxes on, all gambling winnings regardless of the source. (And Bankrate knows you will faithfully comply.) The one bit of good news here is that you can subtract your losing bets from your windfall to lessen the tax bite just a bit.
Mortgage interest -- This is probably the most well-known tax break: You can deduct the interest you pay on your home's mortgage. Interest on a second mortgage or home equity loan or line of credit is generally deductible, too. The interest deduction is just one of many tax advantages afforded homeowners, and it is taken into consideration every day by prospective buyers trying to figure just how much house they can afford. Owning a house is not the only way to cut your taxes. Most homeowners also get a break when they sell their primary residence; up to $250,000 in profit (double that for married couples who file jointly) is exempt from taxation.
Nontaxable income -- When you slog through your taxes, it sure seems like the IRS is taking a bite of every last penny you have. That's not quite true. While the federal government does collect a lot from most of us, there actually is income that isn't taxed. Senior citizens relying solely on Social Security income, for example, don't have to pay on those benefits. Of course, if they're supplementing it with other income, a portion of Social Security might be taxable. Other money that's not federally taxed includes child support, gifts, bequests and inheritances, most life insurance proceeds, workers' compensation payments, insurance and other reimbursements for casualty losses and certain Roth IRA distributions.
Offer in compromise -- Most of us, however, find that the bulk of our income is taxable; sometimes, way too taxable. And occasionally, we find that we can't handle the tax bill we face April 15. If you find yourself in this position, don't panic. You do have payment options, including an offer in compromise. This is a lump sum tax payment that you offer to pay; it's less than the total amount of tax you owe, but in some cases the IRS will accept your offer in order to get some money from you sooner rather than more after years of costly collection efforts. The key here is to make a reasonable offer. There is a process the agency follows, and despite what those late-night cable TV commercials say, you can't walk away from thousands in tax debt for mere pennies.
Payroll taxes -- When you collect the bulk of your income via a regular check from your employer, payroll taxes are collected before you ever get your money. These amounts, subtracted from your earnings via withholding, include federal and state income taxes, as well as payments to the Social Security and Medicare systems. Your employer is required by law to collect payroll taxes and send the money to the federal government where it's held in the appropriate accounts in your name. You get the details each year on your W-2 statement. But you also have a responsibility to ensure that the correct amount is withheld from your checks. Too much withholding means Uncle Sam gets free use of your money all year; too little, and you'll owe at filing time. So check your withholding amount and adjust it if necessary.