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Tax Tips

Since tax issue can be so detailed and go into specific issues that only a few readers would find useful the Thrift Meister won't try to get very detailed with tax tips, but will post broad general tips which can be used by the most people. More tips will be added from time to time so check back for more later.

"IT’S NOT WHAT YOU MAKE THAT COUNTS; IT’S WHAT YOU KEEP!”

* A tax credit is better than a tax deduction. A deduction reduces your taxable income. A credit is a dollar for dollar reduction in the amount of taxes owed.

* Those early refund loans are a bad idea from a frugal point of view--the effective interest rate on them is skyhigh. Example: Let's say you are owed $500 as a refund and get an early refund loan for $475 ($500 - $25 fee charged by lender). Let's say you would have gotten your refund in 6 weeks anyway so you paid $25 to have the use of $475 for 6 weeks. That means your effective interest rate is $25/$475 = 5.26%. So you are paying 5.26% in interest every 6 weeks in effect. If you annualize that rate to see what the annual percentage rate is { First divide 52 into the amount of time in the loan (6/52 = .1154), then divide the interest charged ($25) by the quotient (.1154) to find what the annual interest charges would be on this loan ($25/.1154 = $216.64), finally divide the annual interest charges by the amount of the loan you actually got ($216.64 / $475 = 45.61%). This means your effective annual interest rate on the loan is 45.61%. Does the Thrift Meister even have to bother saying that's a long ways from frugal territory.

* The standard mileage rate for business use is 37 cents per mile for 2004.

* If you have an internet business, demonstrate Tupperware, Avon, Amway, or any other home business or self-employment you must file schedule C to report income and expenses.

* Self-employment income is reported on schedule C.

* When planning for next year, you may need to pay quarterly estimated taxes. You generally have to pay the lesser of 90 percent of your estimated current year tax or 100 percent of your prior year tax.

* Filing a schedule C is a big attention getter at the IRS to conduct an audit so make sure your income and expenses are throughly documented.

* Significant deductions can also trigger an audit. The IRS won't reveal what kind of tax break sets off an audit, but tax professionals warn that individuals who claim deductions that exceed 30 percent of their adjusted gross income start looking like very tempting audit targets.

* Dividend income in 2004: The top dividend rate is still 15%. Taxpayers in the lowest two tax brackets will pay 5%.

* Read the "Lower Your Taxes" book found in the right panel of this web page.

* Tax Tips for 2004 from the IRS can be found here on the IRS web site.

* Essential Links to Taxes--site with many tax related links.

2005 Tax Table

Tax Rate

Single Filers

Married filling jointly or quaflying widow/widower

Married filling seperately

Head of household

10%

Up to $7,300

Up to $14,600

Up to $7,300

Up to $10,450

15%

$7,301 - $29,700

$14,601 - $59,400

$7,301 - $29,700

$10,451 - $39,800

25%

$29,701 - $71,950

$59,401 - $119,950

$29,701 - $59,975

$39,801 - $102,800

28%

$71,951 - $ 150,150

$119,951 - $182,800

$59,976 - $ 91,400

$102,801 - $166,450

33%

$150,151 - $ 326,450

$182,801 - $326,450

$91,401 - $163,225

$166,451 - $326,450

35%

$326,451 or more

$326,451 or more

$163,226 or more

$326,451 or more

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<span style='color:#006600'>Folks taxes are your biggest expense--you need to read this book</span> Thrift Meister has read it and it was time well spent!

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