easy ways to lower your taxes, simple strategies every taxpayer should know (2008)

[...]... are many easy- to- understand ways to lower your taxes you can implement yourself—for example, opening an IRA or hiring your children to work in your business Others are more complex and may chapter 1 | tax basics everyone can understand | 7 require the help of a tax professional, such as tax-free exchanges of business property We’ll focus on the ones that are easier to understand and let you know when... taxes: Refer to your state tax department’s website A handy directory of links to these sites can be found at www.taxsites.com/state.html chapter 1 | tax basics everyone can understand | 13 When to Start Tax Planning People often wait until December to start thinking about ways to reduce their taxes for the year (if they think about it at all) This is too little, too late If you really want to save some... exclude 50% of the regular maximum amount—up to $125,000 for a single taxpayer and $250,000 for married couples You can figure the percentage using days or months 24 | easy ways to lower your taxes Tip How will you back up your excuse? No need to send anything to the IRS when you file your taxes But if you’ve lived in the home for less than two years, you should keep good records in case you’re audited... cover strategies and tax-saving ideas to think about well in advance—so that you’ll be among the few people looking satisfied on April 15 ● C H A P T E R 1 Tax Basics Everyone Can Understand What Can Tax Planning Do for You? 6 Income Tax 101: How the System Works 7 How Low Can You Go? Stopped by the AMT Stealth Tax 10 Most States Have Income Taxes, Too 12 When to Start Tax Planning 13 6 | easy ways to lower. .. previously used one or more of the old laws to avoid taxes on a home sale Can you show two years’ ownership and use? Here’s the most important thing you need to know: To qualify for the $250,000/$500,000 home sale exclusion, you must own and occupy the home as your principal residence for at least two years before you sell it 20 | easy ways to lower your taxes Your two years of ownership and use can occur... probably won’t be able to use all seven in one year That’s fine Just keep in mind that the more of these tips you put into practice each year, the less taxes you’ll owe • Maximize your tax-free income Certain types of income aren’t subject to income tax at all The single best way to avoid taxes is to earn as much tax-free income as possible (See Chapter 2.) I 2 | easy ways to lower your taxes • Take advantage... vehicle) $4,698 Too bad Ron and Rachel didn’t buy and read this book They could have paid $4,698 in taxes instead of $9,938 How Low Can You Go? Stopped by the AMT Stealth Tax Before you start dreaming of reducing your tax bill to zero, realize that Congress tried to put a stop to that, with something called the Alternative Minimum Tax, or AMT The AMT is designed to force taxpayers to pay a minimum... promise to keep it short) As the name implies, with income tax, you are paying tax on your income—for example, your salary from a job or the interest on your savings account However, you don’t have to pay income tax on all your income—not by a long shot That’s largely because not all income is considered “taxable income.” The idea behind tax planning is to use all legal means available to keep your taxable... resulting number is 8 | easy ways to lower your taxes your adjusted gross income (AGI) (These adjustments are often called “above-the-line deductions,” because they go before the line for AGI on your tax return.) • Adjusted Gross Income – Deductions and Exemptions = Taxable Income Now you can subtract out (1) any deductions you’re claiming, and (2) your tax exemptions The result is your taxable income... Shift income to others If you’re in a high tax bracket, you can save a bundle by shifting your income to someone in a lower tax bracket—for example, your children Recent changes in the tax law make this harder to do than in the past, but it’s still a viable planning tool for many taxpayers (See Chapter 7.) • Choose the best filing status and number of exemptions Few people give much thought to their tax . USA TODAY Money Expert Sandra Block and Attorney Stephen Fishman Simple Strategies Every Taxpayer Should Know Lower Simple Strategies TAXES Lower TAXES TAXES YOUR Easy Ways to NOLO YOUR. Block and Attorney Stephen Fishman Simple Strategies Every Taxpayer Should Know Lower Simple Strategies TAXES Lower TAXES TAXES YOUR Easy Ways to First Edition SEPTEMBER 2008 Editor ILONA BRAY Cover. 3 2 | EASY WAYS TO LOWER YOUR TAXES introduction | YOUR COMPANION IN WINNING THE WAR ON TAXES | 3 2 | EASY WAYS TO LOWER YOUR TAXES CAUTIoN isisnotahow -to guide to llingout your taxforms.By