We’re all concerned about taxes. And, filing our taxes can be a complicated issue. We’re all looking for ways to save money while staying within the tax law and we’re trying to avoid an audit. One of the best ways to save money on your taxes and avoid getting audited at the same time is to make yourself aware of the tax law.
Each year there are changes to the IRS tax law that affects our tax return filing for the year. Some of these changes will help you save taxes, while others will cost you money. Some of the changes to the tax law in a given year will be for that year only. Others will be permanent and others will be for a given period of years.
For example, Congress made withdrawals from college 529 savings plans tax free in 2001. This tax law said that as long as withdrawals were made for qualifying expenses, such as college tuition, books and room and board, no taxes would be paid on the withdrawal. However, this tax change expires in 2011. It’s likely that Congress will extend the legislation, but it’s not certain. So, when 2011 comes around, it’s vital that you’re aware of this tax law, and that you find out whether the tax exemption changes or Congress extends the exemption.
Another example of regular changes to the tax code include actual income tax brackets? IRS code requires that income tax brackets be adjusted annually for inflation? This change happens every year, but many of us don’t even realize it. Other routine changes include the standard mileage rate deduction. This deduction is used by the self employed to gain reimbursement for miles driven in their personal vehicles for business reasons. The IRS adjusts this rate periodically, particularly when gas prices rise steeply. In fact, during some years, taxpayers were subject to one mileage rate for part of the year, but a different rate for the other part of the year.
Each year, the IRS releases a publication that provides a good overview of the year’s changes to the tax law. By reading this publication each year before you file your taxes, you can make note of any changes that apply to you.
Of course, another good way to stay on top of the tax law to ensure you’re filing properly is to use a professional tax preparer. Yes, you’ll have to pay them and you’ll have to get your papers in order early in the year to avoid a crunch, but they can often save you a great deal of money, as well as an audit. Either way you choose to go, it’s important that you recognize the changes to the tax law that come about every year and incorporate them when you file. Some can even save you money!