Sunday, October 14, 2007

Tax Return For 2006 and Preparation For My 2007 Tax Return

It's time to fess up and admit I am a procrastinator when it comes to filing my tax returns. I just completed my 2006 tax return, in time for the extended due date of October 15, 2006 (tomorrow:-). To note, an extension does not include extending the time for payments that are due. Taxes owed were still due on April 17, 2007 this year. Thus, I had done a initial estimate of my tax returns in March and, unfortunately, sent in the additional taxes I owed. However, getting an extension usually allows me to make sure I have all my records and to make sure I didn't miss something. Here's what I learned this year:
  1. No return needs to be filed for my daughter's UTMA accounts. My in-laws and we have set up custodial accounts for our daughter. Having heard about the "kiddie tax," I thought that I would need to include her income in our tax return, using form 8814 or form 8615, or, even worse, file a tax return for her. However, I learned as long as her unearned income is below $850 and she has no earned income, no return need to be filed.

  2. No self employment tax needs to be paid on income below $400. According to Schedule SE, no filing needs to be done for self employment income under $400. While this was not a concern for 2006, it will be good information to know for the 2007 tax year.

  3. Sometimes tax rates are reduced. When I calculated our estimated 2006 state tax, I assumed the same tax rates as 2005. According to the estimate, we owed money, which I sent in. However, the tax rates were reduced for 2006, and now we are getting a refund. Although this is probably the last time rates will decrease, I will check our state tax rate for estimates in the future.

Now I have confessed to my misdeeds, I will be taking steps to be better on filing my taxes for 2007. Here's what I am doing:

  1. Taking the H&R Block Basic Tax course. Now that I am retired in my forties, I have time for extracurricular activities like this one. If I pass the final exam with 80% or better, I will qualify to be a seasonal tax preparer for 2007 taxes. At the very least, I will be better prepared to do my 2007 taxes:-)

  2. Do my initial 2007 tax estimate in December 2007. Since I retired in October, 2007, my W-2 income will be finalized in at the end of October, 2007. While I will have some additional interest and capital gains income, it will be small compared to me income. I should be ready to final in January, 2008:-)

We'll see if these interventions will make a difference for the 2007 tax return:-)

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This is not financial or tax advice. Please consult a professional advisor.

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