Tax Tips That Could Save You Money
MADELEINE BRAND, host:
And now, for our weekly conversation about personal finance, it's tax season, and while some taxpayers will remain in denial about that until April, there is no better time than now to start digging through your own bank records and shoeboxes of receipts. Michelle Singletary is here to help. She writes The Color of Money column for the Washington Post, and she is a regular contributor to DAY TO DAY. Hi, Michelle.
MICHELLE SINGLETARY reporting:
BRAND: So there are usually some changes to the tax law every year. What's new for the 2005 filing year?
SINGLETARY: Well, one of the big changes for 2005, as it was last time, was that if you donate a car to a charity, you can only deduct the gross proceeds from the sale. Used to be you could tell them what the fair market value of that used car, but now, they want to know what did the charity actually get when they sold or used your car, and that's what you can deduct, so people need to be very careful about that, because they were used to the old system.
Also, you've got a bigger deduction for your IRA, for example, it increases to $4,000, $4,500 if you're 50 or older, and you have until April 17, when we file taxes, to actually fund that IRA, so if you haven't done that, get moving. You don't want to wait until April because there's lots of paperwork you got to fill out, and also, the IRS increased the standard mileage rate for business use of your car to 48.5 cents, and that's only between September 1 and December 31. You know, all these things are so technical, but, basically, you get more for your mileage for a specific point of time, September 1 to December 31, and that's 48.5 cents a mile. There's some other changes to the standard mileage rates, so you want to check the IRS web site for those new rates, and that's irs.gov.
BRAND: And one thing, Michelle, people might not know about, is that they can deduct state and local sales taxes instead of state and local income taxes, and can you explain the difference? Which is the better deduction?
SINGLETARY: Well, it depends on if you made a huge purchase, like you bought a boat, or a very expensive car, or something in which you would have a lot of sales tax, you may choose to deduct that instead of your local income taxes, whichever's higher, and if you go to, again, the IRS web site, you want to look for IRS Publication 600. It sort of spells out all the things that you could take advantage of in terms of the sales tax deduction amount.
BRAND: Okay, Michelle, so after all of these twists and turns are negotiated and taxpayers receive their big, fat refund check from the IRS, they will, in all likelihood, be jumping for joy, but I sense that you think that's not a good idea.
SINGLETARY: That's right. You know, if you have a regular tax year, nothing extraordinary happened, and year after year, you're getting a tax refund, that's a can you, lend you, Uncle Bucky, money for a year and saying that in April, Buck, can I have my money back? I mean, that's what we're doing; we're giving the government our money for a year, and you don't want to do that. You should have that money during the year to pay off that credit card debt, which I know many of you had, so if that's you, you need to change your W 4 form and change your allowances so that you get more money in your paycheck every week or month, however you're paid, so that you could use that money throughout the year.
BRAND: Michelle Singletary is the author of Your Money and Your Man: How You and Prince Charming Can Spend Well and Live Rich. Michelle, thanks a lot.
SINGLETARY: You're welcome.
BRAND: And if you have questions for Michelle, please send them in. Do that by going to our web site, npr.org. Click on the contact uplink found at the top of every page, and be sure to include Michelle in your subject line.
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