Saturday, January 20, 2007

CHECK OUT ALL YOUR OPTIONS

When preparing your tax return you are often given choices on how to treat a certain situation or item. For example:

· Married Filing Joint or Married Filing Separate.
· Claiming a personal exemption for a dependent student or allowing the student to claim an education tax credit on his/her own return.
· Claiming an “above-the-line” adjustment to income for tuition and fees, an itemized deduction as an “employee business expense” if applicable, or a HOPE or LIFETIME LEARNING education tax credit.
· Depreciating a new business asset or claiming a Section 179 deduction.
· Itemizing your deductions or claiming the standard deduction.
· Deducting state and local income tax paid or state and local sales tax paid.
· Deducting state and local sales tax paid from the Optional Sales Tax Tables or claiming the total actual sales tax paid for the year.
· Claiming the standard credit amount or a credit for the actual telephone excise tax paid.

If you find yourself faced with choices you should review each option and do separate tax calculations to see which one will result in the lowest tax.

You should also consider how the federal option will affect your resident and non-resident state and local tax returns. Choosing an option may save you $50.00 in federal income taxes but cost you $100.00 in state income taxes.

In New Jersey it is often “more better” for married couples to file separately. However, you usually must use the same filing status on your NJ-1040 as you do on your federal return. Do separate federal and state calculations for Joint and Separate filing and determine the overall tax savings or additional tax cost.

Your goal is to choose the options that will allow you to pay the absolute least amount of combined overall federal, state and local income taxes.

Any questions?

TTFN

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