It's all about the Benjamins, Baby! I know that's right because every year around this time, you can smell all the money that's being tallied up in households and businesses around the country. The only thing that is guaranteed is death and taxes and since, Mocha Works, is in business to help make things easier for the working business person, here's some information that may help you keep the taxes to a minimum.
I handle my business and personal accounting and have been filing my own forms for the past three years and it's been a very enlightening experience. I wanted to share that information with you but I also wanted to be sure to include information that I'm not so versed in. So, I've provided some facts and some expert information so all the bases are covered. You can print this out and keep it up, to help you stay on top of your filing dates, if you handle your own accounting. Happy Filing!
Part of sound financial planning is ensuring that you don't pay more taxes than necessary, which means you need to have at least a basic understanding of itemized deductions, even if an accountant prepares your taxes. It's especially important if you prepare your own taxes.
What Is Itemizing?
Each year when you file your income tax return, you have to choose between using the standard deduction (a flat amount) or claiming your actual allowed deductions, called itemizing. If your actual expenses exceed the standard deduction, you'll save money by itemizing.
What's the Difference Between the Standard Deduction and Exemptions?
The standard deduction is a flat amount that you deduct from your taxable income if you don't itemize, and shouldn't be confused with exemptions, which you're entitled to whether you itemize or not (unless your income exceeds certain limits). Either way, for 2006 you get a $3300 exemption for yourself and for each person you can claim as a dependent. If you don't itemize, the standard deduction for tax year 2006 is as follows:
Standard DeductionSingle: $5,150
Head of Household: $7,550
Married Filing Joint: $10,300
Married Filing Separately: $5,150
Qualifying Widow/Widower: $10,300
Dependent: $850-$5,150*
Additional Amount if Blind: $1,000
Additional Amount if age 65 or older: $1,000
* Dependents must calculate their standard deduction using an IRS Worksheet.
You're entitled to an additional deduction, depending on your filing status, if you're over age 65 or legally blind (see Form 1040). If you can be claimed as a dependent on someone else's return, your standard deduction may be limited.
Should I Itemize or Take the Standard Deduction?
To determine if you have enough deductions to itemize, use Schedule A (included with the long version of Form 1040) to list all of your allowable expenses, and compare the total to the standard deduction for your filing status. If your allowable expenses are more than the standard deduction, you can itemize. Over the years, the number of allowable deductions has been shrinking, so it's increasingly difficult to itemize. Mortgage interest is the major allowable deduction for most people, and unless you have a very small mortgage, you probably paid enough interest to put you over the standard deduction and make it possible for you to itemize.
What Expenses Are Allowable Deductions If I Itemize?
Some of the most common allowable expenses include:
State and local income taxes
Real estate taxes (if your taxes include service fees for things like trash pickup, recycling, etc., only the portion related to the value of your property is deductible)
State and local personal property taxes based on the value of personal property such as cars or boats
Mortgage interest
Charitable contributions
Medical expenses (but only if they exceed 7.5% of your Adjusted Gross Income
Debby Fowles, B.S., is an author, accountant, freelance writer, and small business consultant with a passion for saving, investing, making the most of her money, and teaching others to do the same.
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2006 Tax Calendar
U.S. Critical Dates Relating to Your 2005 Tax Returns
January 17, 2006
4th quarter estimated tax payments due for 2005 tax year.
January 31, 2006
Deadline for employers to mail out W-2 and 1099 Statements.
February 15, 2006
Deadline for employees who claim exemption from withholding to file a new Form W-4 to their employers.
February 28, 2006
Deadline for employers to file W-2 and 1099 Statements with the Social Security Administration if filing on paper or magnetic media. Deadline for individuals and businesses affected by Hurricanes Katrina, Rita, or Wilma to file 2004 tax returns.
March 1, 2006
Deadline for farmers and fishermen who have a balance due on their taxes to file their individual tax return and pay the balance due without any late payment penalties.
March 15, 2006
Deadline for corporate tax returns (Forms 1120, 1120A, and 1120S), or to request automatic 6-month extension of time to file (Form 7004).
Final deadline to file an amended corporate tax return (Form 1120X) for tax year 2002 and still claim a tax refund.
March 31, 2006
Deadline for employers to file W-2 and 1099 Statements with the Social Security Administration if filing electronically.
April 17, 2006
Deadline to file individual tax returns (Form 1040, 1040A, or 1040EZ) or to request an Automatic Extension.
Last day to make contribution to traditional IRA, Roth IRA, or SEP-IRA for 2005 tax year. 1st quarter estimated tax payments due for 2006 tax year.
Final deadline to file an original tax return (Form 1040) for tax year 2002 and still claim a tax refund. (Tip: follow my easy step-by-step approach to filing back taxes.)
Final deadline to file amended tax return (Form 1040X) for tax year 2002 and still claim a tax refund. (Tip: mail the amended return well before April 17th to make sure your tax refund will be processed in a timely manner.)
Deadline to file estate or trust tax returns (Form 1041) or to request an automatic 6-month extension of time to file (Form 7004). Deadline to file partnership tax returns (Form 1065) or to request an automatic 6-month extension of time to file (Form 7004).
Final deadline for estates, trusts, or partnerships to file an amended tax return and still claim a tax refund for the year 2002.
May 15, 2006
Deadline for non-profit organizations to file information returns (Form 990), or request an extension (Form 8868).
June 15, 2006
2nd quarter estimated tax payments due for 2006 tax year.
Deadline for US citizens living abroad to file individual tax returns or to request an additional 4-month extension (Form 4868). (Tip: request an automatic extension by April 17th, 2006, instead.)
3rd quarter estimated tax payments due for 2006 tax year.
Final deadline to file corporate tax returns (Forms 1120, 1120A, 1120S).
October 16, 2006
Final deadline to file individual tax returns (with extension).
Final day for e-file.Final deadline to file trust tax returns (Form 1041) if an extension was requested.Final deadline to file partnership tax returns (Form 1065) if an extension was requested.
November 2006
Start planning any year-end tax moves.
December 31, 2006
Last day to make any 2006 tax year moves. Marital status on this date determines your marital status for the whole year.
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