WASHINGTON – Here's a new approach to tax season: Slow down.
Even if you have a refund coming to you (the vast majority of taxpayers do), you have little to lose if you start your returns now and then sit on them for a while. You'll profit more if you use the time between now and April 17, 2007, to try different strategies, find hidden deductions and toss more money into your IRA.
Here are a some tips for taking a bit of time to save money when you file your taxes this year.
— Do it yourself and get help. The best way to maximize deductions is to have a professional review your return; he'll see things that you and your software program might miss, like below-average deductions for work-related expenses or not taking full advantage of college deductions. But the best way to make sure you run your life in a tax-smart way going forward is if you understand all the deductions and credits that make up your tax picture. Accomplish both by preparing your own taxes and then taking them to a pro to review. And you may save money on the prep fees, too.
— Don't rush to file electronically. The IRS really wants you to, but there's no law (yet) that says you have to go out of your way to make the IRS happy. Unless your 2006 income was less than $52,000, you'll probably have to pay to file electronically. That does provide you with a receipt for your return, and may speed up your refund by a few days, but really ... has the IRS ever lost your return before? If you owe taxes, there's scant, if any, advantage to e-filing. (If you did make less than $52,000 a year, you can file for free via the IRS's own Web site, www.irs.gov.)
— Check out the programs. Intuit's market leader TurboTax ($50 and up for federal and state, www.turbotax.com), H&R Block's Tax Cut ($40 and up for federal and state, www.taxcut.com) and online-only program Complete tax ($39 from CCH, a Riverwoods, Illinois, tax research firm, www.completetax.com), are all quality programs that will allow you to do your taxes without a calculator or too much specialized knowledge. Most people use the same one they used before. If you've got the time (remember, this is the year you're going slowly), you could sample all three online and see which one you like best.
— Feed your IRA. The top limit for 2006 IRA contributions is $4,000, ($5,000 if you're 50 or older). Put that money in before April 17, and you can still contribute the same amount for 2007. Even if you're not eligible for a deductible IRA, it's worth doing a Roth IRA. And, if you make too much for a Roth IRA, you can feed a traditional IRA with the intent of shifting that money to a Roth IRA in 2010, when income limits on those transfers are scheduled to disappear for a year.
— Check for deductions that may or may not be on the forms. Some tax breaks were extended in a bill that President Bush signed after the IRS had printed its tax forms for the year, points out CCH, a Riverwoods, Ill., tax research firm (cchgroup.com). The breaks may appear on software programs that get updated regularly, but just to be on the safe side, make sure you get these breaks: the state and local sales tax deduction (especially if you live in a state without an income tax), the $4,000 deduction for college tuition, the $250 deduction for teachers' out of pocket costs and — one newcomer that did make the forms — the telephone excise tax refund (which can be found on line 71 of your 1040).
— Check out alternative strategies to see what works best for you. There are some really counterintuitive strategies that will work for some taxpayers this year, says Bob Scharin, of Thomson Tax & Accounting, a New York research firm. For example, some well-to-do taxpayers may find it worthwhile to give up the exemption they get for their college-age child and instead let the child file his or her own taxes and take tuition credits and deductions for which the parents may make too much to qualify. And some couples who automatically file a joint return every year may find themselves better off filing separately. That could occur if one partner incurred many tax-deductible medical expenses.
— Stretch further, if you want. If noodling through all of these variations takes longer than you think, you can file an extension. You will still have to pay your taxes by April 17, 2007, but if you file Form 4868, you can postpone your filing deadline to October 15, 2007. That ought to give you time to go as slow and thorough as you'd like.