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This year's E&Y tax guide contains 28 tax forms and schedules for taxpayer use, and new, special sections on the Alternative Minimum Tax, e-filing, education-related adjustments, and estate and gift tax planning, top ten tax tips, and the most common filing errors.
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Top Ten Tax Tips
From The Ernst & Young Tax Guide 2008
1. Check your sales taxes. Under a recent change to the tax law, you will have the choice of either deducting your state and local income taxes OR your state and local sales taxes on your 2007 return. Review your receipts for the year, if they're available, or see the sales tax tables issued by the IRS based on your income, family size, etc. (Publication 600) to determine whether you're better off deducting sales tax as an itemized deduction.
2. Do your dividends qualify? Check Form 1099-DIV carefully to determine which dividends from mutual funds qualify for the maximum 15% tax rate. Look at the box labeled “qualified” to figure which dividends are paid from permissible sources—you must also determine whether you've held the shares on which the dividends are paid for more than 60 days during the 121-day period surrounding the ex-dividend date.
3. Look for other deductions. Even if you claim the standard deduction instead of itemizing personal deductions, don't overlook adjustments to gross income to which you may be entitled. Some often overlooked deductions include moving expenses, tuition and fees for higher education, teacher expenses, purchase of a hybrid car and deductible IRA contributions.
4. Write off your new business equipment. If you bought new equipment for your business in 2007, select the method for writing off its cost that will provide the greatest tax benefit.
5. Use your car for business? You can use the actual expense method or the IRS standard mileage rate (44.5 cents) to deduct your car expenses. As long as you have proof of the costs incurred for business driving, select the method that gives you the greater write-off. If you don't have this proof, rely on the IRS standard mileage rate.
6. Did you start up a qualified retirement plan for your small business in 2007? Don't overlook a special tax credit you may be entitled to. You can offset your taxes by up to $500 this year for instituting a qualified retirement plan for your business. Check for eligibility requirements.
7. If you refinanced, deduct. If you refinanced a home mortgage in 2007 and it is a subsequent refinancing (you've already refinanced your original mortgage used to purchase the home), points paid on the prior refinancing become fully deductible on your 2007 return.
8. Contribute to Coverdell. Want to contribute to a Coverdell education savings account for your child or grandchild? You can make 2007 contributions of up to $2,000 as late as April 17, 2008.
9. If you make charitable contributions, get it in writing. Be sure to obtain necessary substantiation for all charitable contributions of $250 or more before you file your return. For example, get written confirmation of your $500 gift from the charity. If you don't yet have it, obtain an extension of time to file your return so you can get the charity's letter.
10. If you suffered a disaster loss, there's help. Claim the loss on your 2007 return or on an amended 2006 return. Choose the year in which your adjusted gross income was lower so that your disaster loss deduction will give you a greater write-off and more tax savings.
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