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.
Qualifying widow or widower -- When you lose a spouse, taxes are not going to be among the first things that you worry about. However, there is a special filing status for widows or widowers who meet certain IRS guidelines, and it could help make the first couple of tax returns after your loss less costly. Tax law allows you to file a joint return for the tax year in which your spouse passed away. Then, for two years following the year that your spouse died, you might be eligible to file as a qualifying widow or widower if you are supporting a dependent child. If you meet the requirements to use this filing status, you'll be able to use the same tax considerations given married joint filers, such as the largest possible standard deduction amount.
Rollover -- When you leave your job, in addition to packing up your desk, you'll probably want to take your company retirement savings account along with you, too. But be careful how you take possession of the account, or it could cost you. Although legally you can have your company give you the account in a lump sum, you must deposit the full amount into another qualified retirement account within 60 days or pay taxes on it. The easiest move, from tax and administrative standpoints, is to directly roll over your company 401(k) into another qualified retirement plan. That way, you won't lose any of the money's tax-deferred earning power, you won't owe the IRS anything and, most importantly, you won't be tempted to spend your nest egg on something you don't really need.
Standard deduction -- Most people choose to claim the standard deduction amount when they file their taxes. It's easy; the amount is right on your return near the line where it should be entered, and there are no receipts to keep track of or threshold amounts to meet, as is the case when you itemize your deductions. But don't automatically take the easy, standard deduction route. Compare your standard versus itemized deduction amounts and take the one that's larger. It will get you a smaller tax bill or a bigger refund.
Temple -- If you gave to your temple, synagogue, church, mosque or other house of worship, it could help cut your tax bill. Religious organizations are generally classified as IRS-approved groups, meaning your donations to them are deductible as charitable contributions, as long as you choose to itemize rather than take the just-examined standard deduction. And don't shortchange yourself when totaling your generosity. Remember to tally up the value of any goods you donated last year. Just make sure the items met the new tax rules requiring that they be in good or better condition or you could lose the deduction.
Unearned income -- You've decided to venture into the investing world, putting your hard-earned salary to work producing more cash. But the added money you make from savings accounts, stocks and bonds, certificates of deposit or mutual funds has tax implications. As your nest egg grows, so do your taxes. The IRS calls these investment earnings unearned income and, in most cases, it is taxable. You might, however, get a bit of a break. Some earnings are taxed at a lower rate, typically 15 percent, then applied to your ordinary earned income (wages, tips, salaries, etc.), which could be taxed at a level as high as 35 percent. Just what type of unearned income you collect and where to report it will be detailed in the various 1099 forms you should get each January or early February. And while you'll probably have to fill out a few more tax forms and run additional computations, it should pay off in a smaller tax bite into your unearned income.
Voluntary compliance -- Because you're visiting Bankrate's Tax Guide to get information on how to file and reduce your tax bill, it's a pretty good bet that you're committed to this basic tenet of the U.S. tax system. Basically, this is the philosophy upon which our tax system is based: that U.S. taxpayers voluntarily comply with the tax laws and report their income and other tax items honestly. Of course, if you try to shirk this duty, the IRS will try to "encourage" you to file, usually by sending you a notice alerting you to a mistake on your return or a balance you owe. If you choose to ignore IRS nudging, you'll get slapped with penalties and interest charges, or worse, for unfiled forms or unpaid taxes.