Tax Hacks Elsewhere
If you’re looking for a few tips on year-end tax hacks, check out the post I wrote for LifeHack: Hack Your Taxes Before Jan. 1.
Appealing Property Taxes: More Than Meets The Surface
The idea is simple enough: most houses have lost value. Who wants to pay taxes on what their house used to be valued at, rather than the lower tax for what it is now worth? Changing the tax bill associated with your house is as simple as appealing the assessment. Plenty of people have gotten on with doing just that: reports of appeals range from 10 percent in some counties to 90 percent in others.
But the number of appeals this year has slowed down the system in some counties. There’s a ripple effect likely to affect your taxes if you’re trying to appeal. You can deduct your real estate tax bill on your federal tax return. If you haven’t paid your real estate tax by Dec. 31, however, you won’t be able to take advantage of that fact on your 2008 return. If your federal tax return is looking particularly hairy, this may be a case of ‘get it in, while the getting is good.’
Income Tax Holidays: Do We Really Want Them?
Louie Gohmert (R-TX) is the Representative in the House that has proposed an income tax holiday: his legislation essentially allows everyone to skip paying income tax and FICA tax for two month. His hope is that we’ll spend all that extra money and stimulate the economy.
As much as I hate the income tax system in this country, I think Gohmert is wrong. I think an income tax holiday is a bad idea and could cause far more trouble than it’s worth. There are so many reasons — Miranda at Yielding Wealth has already listed a few — but I have a few of my own:
- I can easily see an income tax holiday become very expensive for companies with large payrolls: because just about everything is done with computer, I would expect at least a few companies have automated payroll to the point that handling a change of this size would be nearly impossible without creating a whole new payroll system.
- While a few taxpayers will go along with the stated goal of the proposal (stimulating the economy), I think Gohmert will be surprised by the sheer number who use it to play catch up with credit cards, mortgages and other debt. I think more than a few will save it, as well, in the hopes of using it to cover expenses until the economy recovers. Sure, there are plenty of people who will rush out and use it to make purchases — but I don’t think enough will to make a difference.
- Employers are going to have some pretty angry folks on their hands come March, if the income tax holiday goes through. No matter why — plenty of people will start counting on that larger paycheck in just two months. When they don’t get the same amount in March, there’s going to be plenty of yelling.
Tax policy in the U.S. is broken. An income tax holiday is just going to break it further.
Pre-Payment Makes for More Tax Deductions — Sometimes
I’ve seen the advice to pre-pay your business expenses before the end of the month — and the end of the year — in order to cash in on as many deductions as possible. So far, I’ve seen advice to pre-pay for web hosting and domain renewal, January mortgage payments and pretty much any purchase you might expect to make. It’s true that any deductible expenses paid before the end of 2008 can be written off on your tax return for the year.
But there’s a drawback that all of this advice doesn’t take into account. If you write off an expense this year, you can’t write it off next year. Sure, your reoccuring expenses will be eligible for deductions next year, but any one-time purchase won’t. If you expect to owe more taxes next year, it might just make sense to wait until after the new year to make some of those purchases.
Home Office Deductions — In the U.K.
I’ve been reading up on home office deductions, and I was pleasantly surprised to learn that there’s a home office tax deduction available to those folks filing in the U.K. The deduction includes a portion of electricity and heating costs and, in some situations, mortgage interest. It does seem that it’s a little harder for telecommuters to claim a British home office deduction than it is in the U.S. — you have to have a contract explicitly stating that your employer does not provide you with any offfice space.
More information is available on this post by Catherine Roseberry at About.com.
Deductible: Student Loan Interest
In many cases, any payments put toward your student loan interest is Tax Deductible. This has rapidly become important to me this year, as my wife and I pay ridiculous amounts to the student loan authorities of the world.
What are the requirements? Like nearly all adult student deductions, if you are married, you have to file jointly, or no go. You also have to make less than $65,000 a year (single) or $135,000 (joint).
Tax Hacks
This will be a blog featuring various US tax tips and tricks.
I file my own taxes each year, and there are lots of little getchas and bonuses if you do things just right, and lots of pitfalls you can run into.