Are you Interested in Generating Some Extra Cash?


The Best Ways To File

  1. Sometimes you can save money by not filing a joint return. Several types of expenses (medical expenses, casualty losses, and miscellaneous expenses) are deductible only when they exceed a percentage of adjusted gross income. If one spouse has a fairly high amount of expenses and a low adjusted gross income, it could make sense for the couple to file separate returns. In addition, neither spouse can be claimed as a dependent on someone else's return if the couple files a joint return. A family's taxes might be reduced if a couple with little income filed separately and allowed someone else, say their parents, to take the dependency deductions. Also, a couple might jointly own income-producing property. If that property is the only source of income for one spouse, taxes on that income could be reduced or eliminated by filing separate returns. Finally pre-divorce alimony payments (such as those required by a separation agreement) cannot be deducted if the couple is still married and files a joint return. Separated spouses might want to file separate returns so the spouse paying alimony can deduct the payments.
  2. For married taxpayers filing separately, the personal exemption phaseout begins at adjusted gross income of $83,850 and ends at $145,100 in 1994. For married couples filing jointly, the phaseout begins at AGI of $167,700 and ends at $290,200 in 1994. The result is that if married taxpayers are subject to the phaseout on a joint return but do not have equal incomes, they can avoid the phaseout by filing separate returns. To benefit, the lower-earning spouse must have AGI of less than $83,850 and be able to claim the dependency exemptions for the children as well as his or her own personal exemption. This means that spouse must separately provide over half the support during the year. To ensure there is proof, we advise separate bank accounts to pay for support items. See IRS Publication 17 for a list of the expenses that are considered support items. When the marital home is jointly owned, each spouse is considered to contribute half of the cost regardless of the actual contributions. Separate filing might backfire, however, for some married taxpayers with a large amount of itemized deductions. That's because the itemized deduction reduction for married couples filing separately begins with an AGI of only $53,900 in 1994. Because of this lower threshold, some couples will find that the higher-income spouse will lose more itemized deductions by filing separately than they would have lost on a joint return, and this loss will reduce or eliminate the tax benefit of saving the dependent exemptions.

    Using the long form can pay off even if you don't itemize deductions. Some deductions are known as adjustments to income or above-the-line deductions. These are available whether or not you itemize expenses. But they are not listed on the 1040A short form. The long form lists additional adjustments you might be entitled to such as Keogh plan contributions, penalties paid on early withdrawals of savings, alimony payments and the disability income exclusion. The long form also lists tax credits that are not mentioned on Form 1040A.

  3. Tax return due on April 15 and you're not ready to file? One way to extend the filing deadline is to file for an automatic extension with Form 4868. Another way is to be residing outside the United States on April.
  4. If you are residing outside the United States you get an automatic extension of your filing deadline to June 15. But you must be residing outside the United States on April 15. It used to be that you could qualify for this extension if you were simply traveling outside the U.S. on April 15. That is no longer good enough. Another way to get an extension if you are living outside the United States is to file Form 2350 before the due date for your return. This can be used if you anticipate owing no tax on your foreign income. This usually is used because you expect to meet the requirements for using the foreign earned income exclusion sometime after the return is due.
  5. Can't pay? File anyway. If you have money due on your tax return and can't pay your taxes, you should still file your tax return on time. This alone will avoid the failure-to-file penalty and save you some money. Send as much money as you can with the tax return and attach Form 9465, Installment Agreement Request, to the front of the tax return. On Form 9465, give the amounts you can pay and the dates you can pay them. The IRS will usually allow you to follow the installments requested or will work out other options with you. One of the worst things to do is not filing a tax return at all. That can add a lot more to the taxes already owed. To get copies of Form 9465, visit your local IRS office or call 1-800-829-3676.
  6. Married couples with taxable income under $50,000 and without dependents can now use the easiest tax form -- Form 1040EZ. In the past, only single persons could use this easier, green, 10-line form. Other requirements that also apply: you (and your spouse if filing jointly) were not age 65 or older or blind; all income is only from wages, salaries, tips, taxable scholarships and fellowship grants, and taxable interest income of $400 or less; no advance earned income credits were received in 1993; no itemized deductions, adjustments to income, or tax credits can be be taken and no other taxes are owed, other than the amount from the tax table.