Show #410 Airing, Sunday 12/2/07
Last April 14th were you racing to complete your taxes? And on April 15th did you vow that next year would be different? Well the time is now to learn from your mistakes, and here to help us cover the basics is our teacher of tax, our professor of payment protection, our docent of deductions, our coach of credits, our instructor on income, our tutor for 1040's, Tony Mercuri from Ta-Check Tax Service.
Question: Paying taxes is, well, taxing. Since we're not all accountants, it doesn't hurt to have a tutorial on taxes 101, making sure we're not paying more than we must. Tony, you've prepared a "tax study guide" to help. Our first lesson is if you get a big refund each year, you are having too much withheld from you paycheck.
Answer: Yes. In effect, if this happens to you year after year, you are giving the government an Interest-free loan. And the flip side is: if you have too little withheld, you may end up paying a penalty. You must pay 90% of what you owe by year-end, or 100% of the previous year's tax liability, whichever is smaller.
Question: What about all those people who like getting a refund?
Answer: It's ok, if that's what they want. But they should understand, they are losing money!
Question: This next lesson is kind of like new math. A $100 credit is better than a $100 deduction.
Answer: A credit is a dollar for dollar reduction of taxes owed. When you have a deduction you save only a certain percent of the actual dollar amount. $100 credit = $100 savings, while a $100 deduction = approximately $25 savings (depending on tax bracket may be smaller)
Question: Next lesson: not every dollar of your taxable income is taxed at the same rate.
Answer: Portions of your income fall into different brackets. Generally speaking, the first dollar you earn will be taxed at a lower rate than the last dollar you earn.
Question: And, finally, your taxable income is your adjusted gross income minus exemptions and deductions.
Answer: This is why it is in your best interest to take advantage of credits and deductions whenever you can, so make sure you schedule your tax review.
Question: Is it too late to save on 2007 taxes?
Answer: No.
What you don't know can cost your money! The tax code is intricate, and a 101 course might not be enough. Call Ta-Check to schedule a tax review. The number's next. Many thanks to Tony Mercuri.
