Cindy Hockenberry
Cindy Hockenberry
calculated divide equal five form money parts pay received reduced tax taxes
Because of the way this form used to work, it calculated the tax as if you had received the money over a five-year period. You would divide it into five equal parts and pay taxes on each of those parts which significantly reduced your tax bill.
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If you want to save tax dollars, deferring your funds into a retirement account is probably the best solution. That money grows tax free and (if you take out a traditional IRA) you reduce your taxable income in the year you make the contribution.
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I think it's dangerous any time you spend money before it's in your hand. You never know what's going to happen.
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That's the sweet spot. Then you know you had your money all throughout the year and weren't giving Uncle Sam an interest-free loan.
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Tax laws are constantly changing. There have been six major tax bills passed in the last two years alone. Average taxpayers are not likely to be aware of all the changes that may affect their tax return. A tax professional stays abreast of these changes, and, as a result, is in a better position to assist taxpayers with filing accurate returns and claiming all the deductions and credits to which they are entitled.
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The IRS typically assumes you didn't itemize for one reason or another. They almost never notify you if you miss deductions but they will tell you if you miss income.
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It used to be, if you sold your main residence, you had to either pay tax on the gain or buy another home that cost more than the home you sold. Because the rules have changed, you no longer have to worry about that gain.
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They basically just got rid of the flat definition which said a foster child is any child you care for as your own and cared for the entire year. In a way, a lot more people could qualify for the Earned Income Credit than did before.
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People forget about tax credits and they don't take all the deductions to which they're entitled. That happens all the time.
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Now, instead of determining whether you provided half this person's support, the test is, did they provide over half of their own support.
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Sometimes it is fun to go back and look at old tax records. But for reasons other than nostalgia, it's not necessary to hold on to most of your records for more than three years.
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More and more people are going to fall into the alternative minimum tax trap unbeknownst to them until they get the nice letter from the IRS that says it appears you are subject to AMT.
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I'd be willing to bet this is going to be the No. 1 line on the whole 1040 that gets messed up. There are a lot of partnerships and pass-through entities that qualify ... there are more people affected by this line than you might think.
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It's pretty common for people not to consider all the things they can deduct. They don't realize that maybe they have a vacation home and they don't take the interest because they think they can't.