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Six Great Tax Breaks

CNN has a list of six great tax breaks [3] you might be eligible for so give these a gander:

#1 Sales Tax Deduction – You have a choice this year of deducting your state and local taxes from your federal return or deducting the general sales tax you paid last year on your federal return. This is a no-brainer for folks who have no state taxes (nine states apply) and for anyone who made large purchases. I explain this in “Tax Relief 101 – Deducting State Sales Tax (vs. State Income Tax) [4].”

#2 Alimony is Income – Alimony is treated as taxable income so if you received any, you can use it to fund retirement accounts like a Roth IRA. If you’ve paid out alimony, then that amount will reduce your tax burden.

#3 Saver’s Credit – If you don’t make a lot (under $25,000, $50k for married couples) then you get a tax credit of up to $2,000 for any savings you put into a retirement plan. If you want to learn more about this, I discussed this in greater detail in “Tax Relief 101 – Retirement Savings Credit [5].”

#4 Make The Most of Losses – If you had a total stock loss in 2005, then you don’t need gains to offset it because you can deduct up to $3,000 from your regular income! For tax purposes, the stock is considered sold on Dec. 31st, 2005.

#5 Move As Much As You Can “Above The Line.” – Above the line deductions reduce your gross income and adjusted gross income (AGI). Most below the line deduction eligibility is tied to your AGI so the more Above The Line deductions you have, the more below the line deductions you’ll be eligible for. business expenses are above the line deductions so if you have a side business or investment, you could look towards that as a way to reduce your AGI.

#6 Ask For An Extension – Not sure how this is a tax break but nearly everyone can get an extension these days. If you owe, you still have to pay by April 17th. If you don’t, you should probably get this done ASAP anyway.