Dear Friends,

Here are some brief reminders as we head into the last stretch for submitting your tax return:

Do You Have to File?

Technically, maybe not if your income is below certain amounts. But even if you’re retired or don’t owe income tax, you still want to file a 2007 federal tax return. Thanks to the economic stimulus package Congress passed, checks are being sent out in a few weeks to millions of Americans with the hope they will be spent.

However, you won’t get your check if the IRS doesn’t know you exist or where to send it! The Internal Revenue Service recently sent a letter to all taxpayers notifying them about the coming tax rebates. So if you didn’t get one of these letters, there’s a good chance you won’t get your check.

Bottom line: File a 2007 income tax return regardless of your income.

Do I Have to Report It?

Rather than list every single form of income that is subject to tax, the Internal Revenue Code [IRC] takes the opposite approach: It lists what is not considered taxable income, meaning you must report everything else.

Clearly, this includes money we earn from a job or investments. But some of the other things that fall under the “everything else” category might surprise you:   

• Workers’ compensation
• Welfare benefits
• Child support
• Gifts and inheritances
• Damages paid to you as compensation for injuries you received
• Child support
• Cash rebate on a car or other purchase
  

Life insurance proceeds paid to you after the policy holder died are not taxable. However, despite the fact that it is not subject to income tax, you have to report the interest you receive from municipal bonds.

Bottom line: If it's not listed on the income “exceptions,” you have to report it. Check out Publication 525, Taxable and Non-Taxable Income, on the IRS Web site: www.irs.gov.

To Itemize, or Not To Itemize

The federal government gives you a tax break for certain expenses. For instance, for 2007 you again have the option of deducting either state and local property taxes or state and local sales taxes. The latter is especially attractive to folks who live in states that don’t have property taxes and who made a major purchase such as a car, RV, boat, etc... last year.

If you opt for deducting sales taxes instead of real estate taxes you have to decide whether to use the actual sales taxes you paid- for which you’ll need your receipts- or you can estimate this by using the tables the IRS has created.

In addition, you can also deduct such things as mortgage interest and points, medical and dental expenses not covered by insurance, contributions to charities, the cost of weight loss and/or stop-smoking programs, prescriptions and the un-reimbursed portion of losses due to fire, theft, or natural disasters.  

In order to take a tax deduction for the above amounts you have to list, i.e. “itemize,” them. 

To determine if it’s worth the trouble, make a rough estimate of what you spent on these things and compare it to the chart below. If your itemized deductions exceed the “standard” deduction you receive based on your filing status, itemizing may reduce your tax bill.    

Filing Status	Standard Deduction
Single	$5,350
Married Filing Joint	$10,700
Head of Household	$7,850
Married Filing Separately	$5,350

Keep in mind that your itemized deductions begin to phase out if you file “married/joint” and your adjusted gross income (line 37 on Form 1040) is above $156,400. If you file “married/separately” you start to lose your itemized deductions when your income exceeds $78,200.

Bottom Line: If you didn’t make a major purchase, incur significant medical expenses (new baby?), or didn’t own real estate last year, taking a standard deduction might give you a bigger tax break. More information and worksheets can be found on the IRS Web site. Type “Instructions for Schedule A” in the search box.

 
Sweet Charity Deduction?

If you make a donation to a charity or non-profit 501(c)3 organization, you cannot deduct your contribution unless you have a written receipt. This includes donations of household items, clothing, and cash.

When it comes to tangible items, you must have a list of each one and a description of the condition. In general, if the item is not in “good” or better condition, you cannot deduct it. (There are exceptions for valuable antiques.)

Bottom Line: When you give, be sure you receive a receipt. Or, make your donation by check or credit card. You must be able to provide proof of your generosity.

Hope this helps,
Gail

Want more money tips? Check out past Your Money Matters columns

If you have a question for Gail Buckner and the Your $ Matters column, send them to: yourmoneymatters@gmail.com, along with your name and phone number.