A Trickier Tax Season
Nothing's simple, not even the filing deadline. But there are savings to be had if you know where to look
Worthy causes. Fanciful values on gifts to charity is an IRS target du jour. Besides cracking down on overvalued cars and big targets such as conservation easements and bogus appraisals of art and collectibles, the government is also sweating smaller stuff.
Used clothing and household items donated after last August 17 must generally be in good or better shape to be deductible. And effective with cash donations in 2007, you must be prepared to document a gift of any amount with a canceled check, receipt, or other approved proof—a note to yourself won't do.
How much auditing the IRS can do on modest items is limited, but the agency is drawing a line it expects paid tax preparers to help enforce. "If you don't have a receipt and are examined, the deduction will just not be allowed," says Ed Smith, a tax partner at BDO Seidman.
Don't neglect expenditures other than donations. You can deduct gas or 14 cents a mile, plus tolls and parking, when using your car for volunteer work. Hurricane Katrina-related help is deductible at 32 cents a mile. Other deductibles can include a Scout leader's uniform, office supplies, phone calls, and even hosting a fundraiser.
Family ties. Special tax breaks are easy to neglect when it's time to utilize them. The choice of filing status is a good example. Don't jump to a conclusion about filing as married or single—there may be a tax-saving alternative.
If you're not married but provide a home for your child, parent, or other relative, you may be able to file as head of household and pay less tax than filing as single. A parent you support doesn't even necessarily have to live with you.
Someone who became a widow or widower in 2006 can still take advantage of joint filing benefits for that year and, if he or she has dependent children, may be able to do so in 2007 and 2008, too.
Free, sort of. The IRS is again promoting free online tax preparation (at www.irs.gov) in conjunction with tax-preparation firms. But you may have to do trial runs to pick among the varied offerings of the 19 participants—including big names such as TurboTax and H&RBlock. There is a ceiling of $52,000 in adjusted gross income to participate, but some firms have lower income caps, age restrictions, and limits on states of residence. Expect pitches to buy paid options and personal help.
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