Make Your Taxes Less Taxing

Doing your taxes…well…sucks. It’s about as exciting as shoveling your driveway or mowing the lawn. Unfortunately, we all have to do it. And Uncle Sam doesn’t make it easy. The U.S. tax code is literally thousands of pages long. Thankfully, you don’t need to read them all to stay on top of your taxes.

Here are five things that can make doing your taxes less taxing:

First, understand what kinds of “Taxes” you are paying to begin with – Most people think about taxes as one big jug of uggh. But there are several different types of “taxes” that we each pay: federal, state, and local income tax, Social Security taxes (6.2 percent of your income up to $106,800 in 2009), and Medicare taxes (1.45 percent of your income with no cap). If you are self-employed you have to pay twice as much in Social Security and Medicare -- as you pay both employer and employee bits.

Now let’s talk about what you can do to reduce those taxes. The first way is through tax deductions. The most common ones are your property tax, charitable contributions, mortgage interest, student loan interest, as well as medical and non-reimbursed job-related expenses that exceed a certain portion of your income. There are two absolutely critical things to know about deductions:

They are not automatic. You have a choice between a “standard deduction” and taking an “itemized deduction.” To get, for instance your mortgage interest deduction or a write-off for a nonreiumbursed work elated expense you have to list out your deductions on your tax return. Believe it or not, more than two-thirds of people don’t do this – they just take the standard deduction.
Deductions do not reduce your tax bill dollar by dollar. They reduce it by your marginal tax rate. So if you’re in the 25 percent tax bracket and you “deduct” or “write-off” something worth $1,000 you save $250 not the $1,000.

An even better way to cut back on your tax bill is through tax credits. These represent a dollar-for-dollar reduction of your tax bill. The most common tax credits are child or depend care tax credits, education tax credits, energy tax credits, and earned income tax credits.

You don’t need to go it alone. You can go to www.aicpa.org to find a local accountant or to big chains such as H&R Block or Jackson Hewitt. One of the first questions you should ask your tax preparer is if you qualify for any tax credits and if you can itemize your deductions.

What papers do you need to save? Save all supporting materials that you use to create your tax returns for at least seven years (the IRS has up to three years to challenge your tax return and up to six years to audit if they think you've underpaid your taxes). You don’t have to, but I suggest you save copies of your final tax returns -- forever. They can come in handy down the road, for instance, if you take a break from the work place to raise children and then you want to take out a loan to start a business and you want to show your previous earning power.

For more information about filing your 2009 taxes, visit Military.com's Taxes channel.