Don’t Miss These Tax Breaks, Part 1
Tip It!Since we’re gearing up for tax season, I thought I’d write up an article on tax breaks that I recently ran across. There’s six in all, although we’ll be covering them in pairs…
Some payback for your purchases?
If you live in a state with no wage income tax or you live in a state with very low income taxes but high sales taxes, you might get a bigger break on your federal return than you’re used to.
In 2005, just like in 2004, you can choose to deduct either your state and local tax or your sales tax. This has been a great one for us… Since we’re in a ‘no income tax’ state with a high sales tax, we’ve been able to save a bit extra on our taxes. Also keep in mind that, even if you opt for the sales tax deduction based on the IRS tables, as opposed to saving your receipts, you can still add in certain big ticket items (like cars). We did that in 2004 for our minivan, and we’ll be doing it again when we file our 2005 taxes, as we bought another new car.
Update: The optional sales tax tables are, in fact, still available.
Use your alimony to save for retirement and get a deduction.
If you’re divorced and don’t have a paying job, you may think you’re not allowed to make an IRA contribution, because the rule is you must have earned income to do so. However, alimony received is treated as taxable income on your federal return, so, in fact, you are eligible.
Thankfully, this is something that we don’t have to worry about. But… If you’re divorced (and not working) this information might be of some use to you. Note that if you;re the one paying alimony, you can use it to reduce your gross income.
See also: Tax Breaks, Part 2 and Tax Breaks, Part 3
[Source: CNN/Money]
Published on February 13th, 2006 - 7 Comments
Filed under: Taxes
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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7 Responses to “Don’t Miss These Tax Breaks, Part 1”
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February 13th, 2006 at 1:39 pm
are the sales tax tables still available? I can’t seem to find them, i think I saw that they do not apply for 2005?
February 13th, 2006 at 2:12 pm
Yes, they should be available. See IRS Publication 600.
February 13th, 2006 at 3:00 pm
Actually, I don’t think the tables are available anymore, you’ll actually need receipts now.
February 13th, 2006 at 3:20 pm
I hope that I never have to worry about the not working/alimony thing.
February 14th, 2006 at 7:49 am
I may stand corrected… I can’t seem to locate the tables either. Bummer if that’s true, as we haven’t been saving receipts. Oh well, we don’t have any state income tax to claim, so we can still deduct the car sales tax if nothing else.
February 16th, 2006 at 8:51 am
Try pages A-10 and A-11 of your 1040 instructions.
January 29th, 2009 at 5:11 pm
Don’t forget the Flex Spending Account! I set aside 3K and that is an above-the-line adjustment, I believe.. That, coupled with my investment losses should put my income at about ZERO for 2008 (so it feels, at least).