Tips For Tidy Taxpayers
Does Divorce Really Pay?
As if divorce itself isn't difficult enough, what to do about alimony when reporting taxes? Most often, alimony paid is deductible from the taxes you report. Conversely, alimony received is subject to taxation. Also, if you are receiving alimony payments, it counts as earned income when put towards an IRA. The good news is that all this pertains only to alimony payments and not to child support payments, which are neither deductible nor taxable. Doesn't sound fair? It is not a perfect world.
Driving Down Your Taxes
It is better to give than to receive and sometimes IRS regulations agree. If you have a car you want to sell, donating it might be a better route to take. If you donate your car, the deduction is equal to the fair market value of the car (yes, even if you paid a lot more for it). In order to substantiate your claim that the value of the car is a fair market price, you can attach clippings of classified ads in support of your valuation. For donations in general, if your car is worth more than $500, you will need to use IRS FORM 8283 (entitled "Noncash Charitable Contributions"). Just to make sure we are clear here, a charitable donation for the IRS is only if it's made to a bona fide charitable organization (your down and out brother doesn't count). Caveat taxee: The IRS is alert to abuses of this donation by taxpayers who inflate the value of their car. If guilty as charged, you could get hit with a fine up to 40% of the unpaid tax. Still, it is in giving that we receive. Right?
Good Tax Habits
If you are one of those lucky ones who get to make deductions on you tax return, we suggest you start now and substantiate everything. Save all those receipts and keep records of anything you think you may be able to deduct. Some areas where you might consider keeping tabs: charitable contributions, higher education expenses, deductible taxes, work-related expenses, medical expenses, and employment search related expenses. If you have any questions about what categories apply to your situation specifically, call us. It's our business to help you.