Dunnan on Dollars

  Personal Finance Tips from Nancy Dunnan

The Last Weekend
Tax Tips to Beat the Deadline

April 11, 2008 - It's here. Not The Lost Weekend*, but rather The Last Weekend - the one before you must file your IRS 1040 or an extension.

One. If you're still looking for your 1040s and other required documents, you should file an extension. Doing so buys you time to figure out what you've put off figuring out.

But be aware -- an extension does not mean you can delay paying the IRS. If you owe the IRS money, the payment deadline remains April 15. You must estimate, as closely as possible, how much you owe and pay that amount when you file your extension on or before April 15.

Fortunately, you are not required to explain why you are filing an extension - simply use IRS Form 4868. You can e-file the form or download a paper version at: http://www.irs.gov/.

Two. Don't forget about capital losses. If you sold investment last year for less than you paid, you have a legitimate capital loss. And, capital losses offset capital gains, on a dollar for dollar basis.

However, the IRS has an annual limit on the dollar amount you can deduct for capital losses -- the maximum is $3,000 of capital losses, in excess of capital gains. 

Or, to explain it another way...if your total capital losses exceed your total capital gains for the year, then you have a net capital loss. Net capital losses are deductible up to a limit of $3,000 a year.

And, don't forget. You can carry forward unused losses (that is net capital losses in excess of the $3,000 limit) indefinitely and deduct them in later years.

You will find the details spelled out on IRS Schedule D, which you must file with your 1040.

Three. Take time to determine if you should take the standard deduction or itemize. Obviously it's much easier to take the standard deduction than it is to get out your calculator and add up all your possible deductions.

The standard deduction for 2007 is $10,700 for a married couple filing a joint return and $5,350 for single filers.

One of the most common reasons American itemize is to deduct the interest on their mortgages. It's considered a no-brainer. However, if you have lived in your home for a long time and therefore have paid down most of the loan, your interest deduction may be so small than itemizing doesn't pay. Worth running the numbers.

Four. You may be entitled to a deduction for government or private mortgage insurance premiums. This is a new deduction and granted only to households with an adjusted gross income of $100,000 or less. Government and private mortgage insurance is generally required for those who could not afford a 20% down payment. (It's designed to protect lenders against default!)

You can take this deduction only if your mortgage was put in place after December 31, 2006.                       

Five. Be sure to sign your return. Thousands of taxpayers each year neglect to do so.

Six. Check and double check your Social Security number. An amazing number of people enter one or even two incorrect figures.

The IRS matches the Social Security number on your tax return with the number it has under your name in its computer system. Messing this up creates a mess that's difficult and time consuming to fix.

Note: This advice applies not just to Social Security numbers for you and your spouse, but to any dependents you declare.

Seven. If you're filing the old-fashioned way, via the U.S. Post Office, use plenty of postage. If your return is thick with papers, stand in line and have the envelope(s) weighed. Or, if you know it's under one pound, use the Priority envelope and the required $4.60 stamp.

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* The Lost Weekend was an Academy-Award-winning 1945 film based on the novel by Charles R. Jackson. Directed by Billy Wilder and starring Ray Milland, Jane Wyman and Phillip Terry, it tells the story of a writer who falls into heavy drinking after he is accused of having an affair with one of his male friends while in college. In the film, the reference to a gay affair is removed and the alcoholic binge is blamed instead on writer's block.

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If you want to suggest a column topic for Nancy, drop her a line.

Like what Nancy has to say? you might be interested in the new edition of her book:
How To Invest $50 To $5,000: The Small Investor's Step By Step Plan for Low-Risk, High-Value Investing