class="bi x0 y0 w0 h1"
1ST EDITION
by USA TODAY Money Expert Sandra Block
and Attorney Stephen Fishman
Simple Strategies
Every Taxpayer Should Know
Lower
Simple Strategies
TAXES
Lower
TAXES
TAXES
YOUR
Easy Ways to
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First Edition SEPTEMBER 2008
Editor ILONA BRAY
Cover & Book Design SUSAN PUTNEY
Proofreading ROBERT WELLS
Index SONGBIRD INDEXING
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USA TODAY CONTRIBUTORS
Book Editor BEN NUSSBAUM
Contributing Editors JIM HENDERSON, FRED MONYAK,
AND GERI TUCKER
Special thanks to JULIE SNIDER
Fishman, Stephen.
Easy ways to lower your taxes : simple strategies every taxpayer should know / by
Stephen Fishman. 1st ed.
p. cm.
Includes index.
ISBN-13: 978-1-4133-0913-3 (pbk.)
ISBN-10: 1-4133-0913-5 (pbk.)
1. Income tax Law and legislation United States Popular works. 2. Tax planning
United States Popular works. I. Title.
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Your Companion in Winning the War on Taxes

1
1
Tax Basics Everyone Can Understand

5
What Can Tax Planning Do for You?

6
Income Tax 101: How the System Works

7
How Low Can You Go? Stopped by the AMT Stealth Tax

10
Most States Have Income Taxes, Too

12
When to Start Tax Planning

13
2
e Best Tax Is No Tax: Income at’s Tax Free

15
Timing Your Home Sale for Maximum Tax-Free Income

18
e Minor Advantage: Tax-Free Income for Children

Hybrid Cars: New Wheels and a Tax Break, Too

73
Solar Power—Let the Sun Burn Up Your Tax Bill

75
Tax Joy From Your Bundles of Joy

76
Get Educated and Get a Tax Break

80
Is Saving for Retirement a Challenge? Here’s a Boost

86
Own a Business? Tax Breaks for Good Corporate Citizens

87
Expats’ Delight: Credit for Income Taxes Paid Elsewhere

91
Bought Your First Home? A Tax Credit at’s Really a Loan

93
Take Credit for Rehabilitating an Old or Historic Building

94
Benefit From Investing in Low-Income Housing

96


124
5
Count Every Penny: Reducing Taxable Income
With Deductions

127
Something for Everyone: Types of Tax Deductions

129
What’s in It for You: e Dollar Value of a Deduction

130
Going the Easy Route: e Standard Deduction

132
Going for Every Dollar: Choosing to Itemize

135
Adjust Your Income With Above-the-Line Deductions

159
Own a Business? Deduct Your Expenses

162
Plan Ahead to Maximize Tax Savings From Deductions

168
6
Join the Low-Rate Club: Reduce Taxes


211
Minor Detail? You Can’t Take Your Gifts Back

213
How to Give Away Plenty Without Gift Tax Concerns

215
Give Junior a Job and Shift Your Tax Burden

217
8
Making the Most of Your Filing Status
and Tax Exemptions

225
Choosing the Classification for You

226
Taking All the Tax Exemptions You Deserve

238
9
Help Beyond is Book

253
Information From the IRS

254
Other Online Tax Resources

overlooked) strategies that are
easy to use and are most likely
to save you—the average
taxpayer—money.
Let’s take a quick look
at our seven favorite tax-
planning strategies, starting with the ones that could save you the
most. You probably won’t be able to use all seven in one year. at’s
fine. Just keep in mind that the more of these tips you put into
practice each year, the less taxes you’ll owe.
• Maximizeyourtax-freeincome. Certain types of income aren’t
subject to income tax at all. e single best way to avoid taxes
is to earn as much tax-free income as possible. (See Chapter 2.)
introduction
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YOUR COMPANION IN WINNING THE WAR ON TAxES
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EASY WAYS TO LOWER YOUR TAxES
introduction
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EASY WAYS TO LOWER YOUR TAxES
• Takeadvantageoftaxcredits.Getting a tax credit is the next best

are entitled to tax exemptions. ose with dependent children or
other dependents may be entitled to many. (See Chapter 8.)
introduction
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YOUR COMPANION IN WINNING THE WAR ON TAXES
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3
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EASY WAYS TO LOWER YOUR TAXES
introduction
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YOUR COMPANION IN WINNING THE WAR ON TAXES
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3
2
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EASY WAYS TO LOWER YOUR TAXES
CAUTIoN
isisnotahow-toguidetollingoutyourtaxforms.By the
time you’ve got the forms in front of you, it will be too late to implement
many of the tax-saving techniques you’ll learn here. Instead, we cover
strategies and tax-saving ideas to think about well in advance—so that
you’ll be among the few people looking satisfied on April 15. ●

1
cHAPtEr
Tax Basics Everyone
Can Understand
What Can Tax Planning Do for You?

T
o figure out which tax-saving strategies will work best for you,
you’ll need a basic understanding of how the income tax system
works. Cheer up! is isn’t as bad as it sounds. In fact, you may
even find it fun to learn about taxes, particularly when you see how
much money you can save with a little knowledge and planning.
What Can Tax Planning Do for You?
Tax planning means figuring out ways to minimize the taxes you have
to pay each year. It’s perfectly legal and makes sense for anyone who
pays taxes.
is isn’t tax evasion, which means cheating—for example, not
reporting all your income to the IRS. Tax evasion is illegal, and people
who are caught at it must pay all
the taxes they owe, plus interest
and penalties. Some even go to
jail. Look at what happened to
the winner of the first Survivor
television series, Richard Hatch.
He was sentenced to 51 months
in federal prison for tax evasion
after he failed to report his $1
million winnings to the IRS.
But you probably don’t have
$1 million to hide. In fact, you
might be wondering whether tax
planning isn’t just for rich people
who were looking for an excuse
to sail to the Cayman Islands anyway. e answer is no. People with
modest incomes can benefit from tax planning. And they often can do
it themselves, without high-priced accountants and tax pros.

To do this, you must go through a step-by-step calculation that will
ultimately tell you how much you owe; it goes something like this.
• Startwithallyourincome. First, you add up all the income you
earn or receive each year, regardless of the source—salary, interest,
net business income, investment income, and anything else. If
you’re married and file jointly (as the great majority of married
couples do), include your spouse’s income as well.
• AllIncome–Exclusions=GrossIncome.Next, you get to exclude
certain items from your income, to arrive at your gross income.
(It’s not called gross because it’s disgusting; here, gross means the
totality of your income, minus some important exclusions.) ese
exclusions include such things as gifts, life insurance proceeds,
up to $500,000 in profits from the sale of your home if certain
requirements are met, interest earned on municipal bonds, and
other items. (Exclusions are covered in Chapter 2.)
• GrossIncome–AdjustmentstoIncome=AdjustedGrossIncome.
Hey, more subtractions! You get to adjust your income downward
for things like contributions to deductible IRAs and self-employed
retirement plans, contributions to health savings accounts, your
health insurance payments if you’re self-employed, moving
expenses if you change jobs, and more. e resulting number is
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cHAPtEr 1

(Exemptions are covered in Chapter 8.)
• TaxableIncome× TaxRates=TaxLiability.By multiplying the
amount of your taxable income by the tax rates set forth in IRS
tax tables or schedules, you’ll find out your tax liability. e tax
rates vary according to the amount of your taxable income, from
a low of 10% to a high of 35%. (ese brackets are listed in
Chapter 6.)
• TaxLiability–TaxCredits=TaxDue.Wait, you’ve got one last
chance to lower your tax bill. You can subtract any tax credits
you’re entitled to, for such things as buying a hybrid car, paying
for higher education or child care expenses, or making your home
more energy efficient. (Tax credits are covered in Chapter 3.) e
total remaining is the amount you owe the IRS.
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EXAMPLE: Ron and Rachel are a married couple, with two young

favorite charity.
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Had they done these things, here’s what Ron and Rachel’s taxes would
have looked like:
Total Income $87,000 ($95,000 – $8,000 of
deferred income)
GrossIncome $87,000
Gross Income $87,000
Minus: Adjustments to
Income
$10,000 (IRA contribution)
AdjustedGrossIncome $77,000
Adjusted Gross Income $77,000
Minus: Itemized
Deductions

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EASY WAYS TO LOWER YOUR TAxES
pay less, or no tax at all, under the regular tax system. If you’re required
to pay the AMT, you pay it in addition to your regular income taxes.
But not everyone falls prey to the AMT. You’re most likely to be
subject to it if you have a high income (over $100,000 for singles and
$150,000 for married couples) and have many exemptions and deduc-
tions that the AMT rules don’t allow. You might owe the AMT if you:
• havelotsofchildren—eachoneprovidesa$3,500dependency
exemption not allowed with the AMT
• liveinastatewithhighincometaxes,likeNewYorkorCalifornia
• havesubstantialmiscellaneousitemizeddeductions,suchas
unreimbursed employee expenses or investment expenses
• haveaverylargemedicalexpensededuction
• paysubstantialintereston
a home equity loan and
didn’t use the money to
improve your home or buy
or improve a second home,
or
• receivestockoptionsfrom
your employer.
Unfortunately, if you are subject
to the AMT, this book can’t help
you—it’s a highly complicated sys-
tem, and many of the tax-planning
techniques we cover here simply

Hampshire—tax only dividend
and interest income.
e seven states with no
income tax are Alaska, Florida,
Nevada, South Dakota, Texas,
Washington, and Wyoming.
Even if you owe state income
taxes, they’re likely to be much
lower than your federal taxes (for
a list of all state income tax rates,
go to www.taxadmin.org/FTA/
rate/ind_inc.html).
RESOURCE
For more information on state income taxes: Refer to your
state tax department’s website. A handy directory of links to these sites
can be found at www.taxsites.com/state.html.
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