Tax Help Please

[EvilNewbie]

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Help me figure this out. I will be filing taxes next year and wanted to get a huge headstart... Suppose I will be paying off multiple debts from private loans, credit cards, and student loans and will be paying about over $700 a month. I pay almost $400 for an apartment and make nearly 40k a year as PGY-1. I have a life insurance investment and will be starting a Roth IRA and mutual fund along with 403b with the hospital when starting residency. Now, I am trying to see how many deductions I can claim.

So far: I assume I am in the 25% tax bracket (29k-70k income level):

1) Lifetime Learning: $2000 off since I paid tuition during the Spring of 2005 about $18000.

2) Interest deduction from my loan payments (up to $2500).

3) Lower taxes on my earned dividends on my mutual funds and credits on my 403b plan. But I guess I don't qualify for an Roth IRA credit.

4) Moving related deductions. Yes, it's over 50 miles. Geez.

5) Income tax deduction paid to state, city, and county. Does it include school districts too?

6) What is the difference between deductions, exemptions, and credits anyhow? Is there a webpage where it lists all the deductions, credits, and exemptions possible that Ii can claim somewhere?

7) What states qualify in using auto license tags as personal property deductions? Does Ohio qualify?

8) Is there anything else I am missing?

 

[southerndoc]

8) Is there anything else I am missing?

A CPA. Seriously, you should get one.

 

[EvilNewbie]

All they tell me is that it don't mean squat unless I make big expenditures like buying a house or something... Buying a house at this time would only further put me in debt. A debt that I am trying to get out of, if only I could win the lottery.

 

[beriberi]

Paying off consumer debt (as far as I know--there could be some crazy exception) does not reduce your taxes (and why should it?). Interest paid on a residence does.

To answer question 6. Try www.irs.gov It actually is a pretty good site. And you can be fairly certain that the information is accurate.

Most interns pay 0 in federal taxes, without a CPA or jumping through a whole lot of hoops. They make only $20K their first year (July-Dec), putting them in a very low tax bracket. Also, they typically deduct some student loan interest/capitalization.

Getting rid of debt is good, especially if it is bad debt (credit card, auto.) Paying off good debt should not be your first financial priority (home, student loans).

Consolidating your loans and starting to pay them will increase deductions no matter what else is going on financially (unless you marry someone making a whole lot of money).

You will get it all back. Stop thinking about it. Go drink yourself into a stupor--as you only have a few months of fourth year left.

 

[MDEntropy]

I just quickly skimmed your question and this thread, but I can tell you that won't owe any taxes, so whatever you allow the gov't to take, you will get back.

A deduction allows you to make a payment using pre-tax money. This is different from money that you spend at, say, wal-mart which is post-tax.
Another way of looking at this is that any payments made with pre-tax money reduce your taxable income. So if you make 40k but you pay 1k to mortgage INTEREST, then you only have to pay taxes on 39K of your income.
If you are in the 25% bracket, $2000 of marginal pre-tax money is only $1500 post-tax (actually less if you have state taxes). So in this case a $2000 deduction saves you $500. Thus a deduction essentially allows you to use part of your income without paying taxes on it.

A credit is a direct offset to any tax liability(money you owe). So lets say at the end of the year your fed tax liablity was $2200. Lets also say that over the course of the year $2500 had been removed from your check for federal tax. In this situation you would $300 back. But if you also had a lifetime credit for $2000, you would get an additional $2000 back for a total of $2300 returned. So a $2000 deduction saves you $2000. Hopefully you can see that at equal dollar amounts a credit is more valuable than a deduction.

An exemption is basically a federal tax break you get for having a dependent. If you have 3 kids to support you pay less taxes. People often have less money taken out of there check if they have lots of kids because they will pay less taxes at the end of the year anyway. Others have less money taken out because they would rather get the money during the year (and save it with interest) than get a big refund check at the end.

The 403B contribution is a deduction. It is pretax money that is being invested. So whatever you put into that you will not have to pay taxes on. This will reduce your taxable income. But you will need to pay taxes on whatever you have earned on the investment when you take it out in like 2040 when you retire.

The Roth uses post-tax money, so no tax benefit now, but when you retire and the 3k you put it has grown to 17k (assumes ~5% per year for 35 years) or whatever, you won't have to pay taxes on it.

Don't forget, 25% will be your marginal tax rate (the tax you have to pay on each additional dollar you make), not your effective tax rate. You are taxed nothing on your first 8K, then 10% on the next however much, and so on. You don't just pay a 25% flat tax on everything that you earn. You are progressively taxed more and more for each additional amount you make.

If you use a web-based tax program they will find most of the ways you can save on taxes automatically just by asking you some relatively simple questions. Try one (e.g. turbo tax on the web, the irs site will give plenty of links) and just enter estimates and you will be happy to see that this year you will be paying nothing on the 20K you will make. This assumes that you don't have some other large source of income. 😉

 

[NinerNiner999]

If you are married and your spouse needed to look for a job in the same field in the new city where you are moving, and you are filing jointly, you can deduct his/her interview travel/expenses while looking for work. If you paid by credit card, you can use old statements a reciepts.

 

[PassinGas]

If you are married and your spouse needed to look for a job in the same field in the new city where you are moving, and you are filing jointly, you can deduct his/her interview travel/expenses while looking for work. If you paid by credit card, you can use old statements a reciepts.

Why would it matter if my wife were looking for a job in the "same field" in the new city where we are moving? Her job is not medicine related, but I don't see why that matters; I would still think that we could deduct her interview/moving expenses since she will be interviewing and getting a new job in the same city. Is that correct? Thanks.

 

[Hercules]

Why would it matter if my wife were looking for a job in the "same field" in the new city where we are moving? Her job is not medicine related, but I don't see why that matters; I would still think that we could deduct her interview/moving expenses since she will be interviewing and getting a new job in the same city. Is that correct? Thanks.

I don't think he meant the same field that YOU are in; I think he meant the same field that THEY are currently in.

 

[edmadison]

Unless you own a home, I think it's unlikely that you will gain by itemizing (although possible). This year its $4850 for singles and $9700 for married people filing jointly. You'd have to have some whomping state/local income tax (e.g. NYC) to make it worth while. The lifetime learning credit, moving expenses and the student loan interest deduction are both above the line, so you'll get those anyway. You should be able to look at your deductions and estimate if you'll be close or over to those standard amounts.

Ed

 

[kas23]

I have a quick question. A friend recently told me that if you have not paid any taxes this year (that is, you are a student and have zero income), then if you file and claim the Lifetime learning deduction, you may get the $2000 back in cash. It this true? I thought that you at least had to be paying taxes to get this refund back. He said he has been doing it for the last 3 years and no one has made any fuss about it (at least not yet).

 

[doglover]

I have a quick question. A friend recently told me that if you have not paid any taxes this year (that is, you are a student and have zero income), then if you file and claim the Lifetime learning deduction, you may get the $2000 back in cash. It this true? I thought that you at least had to be paying taxes to get this refund back. He said he has been doing it for the last 3 years and no one has made any fuss about it (at least not yet).

As far as I know, not true. The credit is against what you owe the government,and if you have no income then you don't owe anything in the first place. The IRS instructions are pretty clear on this. I'm curious about what his tax return looks like every year.

 

[edmadison]

As far as I know, not true. The credit is against what you owe the government,and if you have no income then you don't owe anything in the first place. The IRS instructions are pretty clear on this. I'm curious about what his tax return looks like every year.

Correct. The lifetime learning "credit" is actually not a credit at all. Its an above the line deduction.

Ed