Get Excited for Income Tax Time!

I'm probably one of the few people in the U.S. that enjoys income tax time. Well, more specifically, I enjoy doing my own taxes - I don't necessarily enjoy the massive overtime I'll be working. But it comes with the territory. This year I'm looking at a ~ $2000 refund! It's also the first year I can itemize my deductions because of my mortgage. (That's a pretty exciting milestone for me) :)

Tax professionals will tell you that the "smartest" income tax return has either very little to pay or very little as a refund. People are always asking me why I choose to be "Single-0" (no dependents) and withhold more federal and state withholding taxes than necessary. Yes, the general aim of withholding taxes is to estimate income tax for the full year to offset any taxes you may need to pay. Thus having little to no refund or payment is the best. But, in a nation where people save very little, I withhold extra so I have one large lump-sum "bonus" come income tax time. Many people do approach this as giving Uncle Sam an interest free loan for the year. Yes - that's pretty true. But honestly, how many people do any patriotic duty to the U.S. anyway? Is giving Uncle Sam (who is in a ridiculous defecit) a few bucks of earned interest that terrible? I am personally otherwise unpatriotic, but this is the way I give back to my country. Earn interest on me. I don't quite care.

Now that it's the end of the year, it's also time to make some decisions.

• Are my stocks at a loss? If there are losses, are there gains to offset it? You can deduct capital losses (against any gains) of $3000 (which is the limitation) for married couples, or $1500 for single people.
• Is there a worthy cause that could use a contribution? Hurry up and make contributions before year-end so they count toward this year's income taxes. There are tons of organizations and causes that could use your money this year. The most obvious is Hurricane Katrina and Rita relief. Another is the Pakistan Earthquake relief. There's also local charities and the Red Cross or Salvation Army. Personally, since I already contributed to the hurricanes earlier, I'm going to donate some money to the Pakistan Earthquake relief. Other countries need help too.
• Or (on the same note of donating), donate old (but usable) items to the Salvation Army or Goodwill. Donate up to $500 worth of items without having to itemize the contribution. (Trust me - itemizing it will take up more time and effort than it's worth)
• Make your January 1st mortgage payment on December 31st. That way, you have an extra month's mortgage interest to deduct. (You better hurry up and deduct mortgage interest while you can - before Congress eliminates it!)
• Pay your property tax bill on December 31st and deduct your property taxes this year.
• Start thinking about your retirement account contributions. If you haven't already started one, perhaps it's time to!
• If you're thinking about making your house more energy efficient, WAIT! 2006 will have better tax credits for energy efficiency.

Oh and off the top of my head, here are a few changes that may be good or bad for you:

• The standard deduction has been raised: Single $5000, Married $10,000
• The mileage reimbursement rate was raised (twice) to: 40.5 cents per mile from 1/1/05 to 8/31/05 and 48.5 cents per mile from 9/1/05 to 12/31/05 (because of record gas prices).
• IRA contributions have increased to: $4000 for those under 50 years old, and $4500 for 50 years old and up.

And remember - tax preparers always appreciate it when tax information is somewhat neatly organized. In the past, some clients have given us tax information shoved in shoe boxes and dresser drawers. Give people the same courtesy you'd want for yourself. :)