Tax Tips for Single Filers, Part I

Yesterday, Singletude outlined five ways in which singles get the short end of the tax rebate carrot. But enough of the negativity. The question is: What can we do about it?

Short of writing your senator and taking up the torch for tax reform, there's not much you can do to ensure that you get as big a slice of the tax return pie as a married couple. This really is a case of two against one. But you can be a savvy filer who knows his or her way around the tax code and takes advantage of every deduction open to you. Here are some opportunities to make your deductions stretch, three today and two tomorrow:



1. File as a head of household if you can.

The difference between a single filer and a head of household is that the latter has paid more than 50% of the cost of his or her home maintenance and has supported at least one dependent for over half the year. Heads of household are entitled to higher deductions and lower tax rates than those who file single, so it pays to find out if you meet the qualifications.


2. Take as many exemptions on your W-4 as you can.

If you're single and have no kids, claim one exemption for yourself. If you claim zero, you'll get a windfall in the spring, but that's because you let the government borrow your money for a whole year interest-free. You don't really want to fund some morally bankrupt politician's very own night with "Kristen," do you?


3. Deduct, deduct, deduct!

Yes, it's a pain in the brain to do the math; but no pain, no gain in the bank account. Here's what you should deduct:


Educational Expenses

Now here's one that affects millions of singles. If you're paying off student loans, you can deduct all or part of the interest if you earned less than $70,000, even if your parents helped you out with the payments.

Or maybe you took college courses this year. If so, you could be eligible for the Hope Scholarship or Lifetime Learning Credit. The first is for students in their first two years of college and provides for a deduction of up to $1,650 if your income was less than $57,000. The second applies to all other students, including graduate and returning students, and allows for up to $2,000 in deductions with similar income restrictions. If your income disqualifies you from either of these, you can take a tuition deduction of up to $4,000 if you earned less than $60,000 and up to $2,000 if you earned less than $80,000.

Finally, if you're not a student but a teacher, you're entitled to claim up to $250 of your out-of-pocket expenses for your classroom.


Medical and Dental Expenses

Obviously, you'll want to claim any medical bills you paid out of pocket, but you can also claim the long, dusty miles you drove to visit your favorite doctor. Check out the IRS's standard mileage rates for 2007 to calculate your deductions.

You can also get a break on purchases prescribed by a physician, and I'm not just talking contacts and Miracle-Ear, although medical devices and equipment are included. If your doctor advised you to start a weight-loss program or get an air purifier, that's a deduction.

In addition, you can deduct your health insurance premium if you purchased your own plan or contributed to it with taxable income (that is, if you weren't covered by an employer who deducted any required contributions directly from your salary).

Sound too good to be true for a country in health care crisis? There's a catch. For this deduction to work, your total expenses must be 7.5% or more of your adjusted gross income (AGI). (Note: AGI is tough to calculate, so sit this one out and let the professionals go to work.) However, if you're self-employed, there's a sweet spot for you--you can deduct your insurance premium, no matter how much you made.


Job-related Expenses

Falling under the category of Miscellaneous Deductions, these must amount to more than 2% of your AGI when added to your other miscellaneous items. They're tricky, ambiguous deductions and should be verified with an accountant when in doubt. For instance, you can deduct the purchase and upkeep of a company uniform but not of street clothes worn to work. You can deduct miles traveled to a job interview, but if you're hired, you can't deduct the same trip as a daily commute. Here's a general rundown of what you can deduct:

--Job-seeking expenses, including mileage costs
--Tools used on the job
--A computer or cell phone if your employer requires you to use it for business
--Specialized clothing or uniforms that you only wear to work
--Union dues
--Subscriptions to professional journals
--Continuing education in your field

Again, there's a lot of room for interpretation and, thus, a lot of room for error, so be careful. For more detailed info on the above deductions, go here.


Self-employment

It's said that with freedom comes responsibility, and this is true for no one as much as the self-employed filer. The deductions available to an independent contractor could be a post unto themselves and are beyond the scope of this blog. There are stringent regulations regarding the separation of personal and business use of rented spaces, equipment, transportation, etc. If you're self-employed or thinking of becoming self-employed, you can read an overview here and here.


Relocation

If you've relocated for a job (not just because you didn't care for it in sunny Michigan anymore), you can take deductions on expenses your employer didn't reimburse if your new office is 50 miles further from your home than your last place of business. Moving expenses are a bit of a gray area, but you can usually deduct:

--Travel for yourself and any dependents accompanying you, including pets
--Accommodations en route
--Shipping
--Storage of shipped items for a limited time

For fuller descriptions of these deductions, read this.


Hobbies

Guess what? If you perform as a sword swallower at circus sideshows on the weekend or sell your postmodern trashcan sculptures at the flea market, this counts as a hobby, and you can deduct associated expenses. The catch? You have to actually make money off the hobby (no, writing in your journal doesn't count), and you can't deduct more than you earned.


Charitable Contributions

If you have a soft heart for PETA or the Red Cross, make sure Uncle Sam doesn't take advantage of your goodwill. Get a receipt for your donations and tell the IRS, "Paws off!"

Note that this deduction also applies to expenses incurred in volunteer work. So if you had to, say, buy a dorky uniform that makes you walk like a penguin or drive a considerable distance to the soup kitchen, deduct the Mumble jumpsuit and the mileage.


Energy-efficient Transportation

Got ethanol? If you need a new car, make it a hybrid. Until 2010, you can save up to $3,000 in taxes depending on the fuel efficiency of your new ride.


Gambling

Fond of poker? Blackjack? Slots? Like it more than your poker face warrants? That's why you can deduct your gambling losses. But hold 'em, Tex. You can only deduct losses from your winnings (meaning that, yes, you have to win), and you can't deduct more than you won. You'll also have to be an immaculate bookkeeper to prove how you hit the jackpot and how you got rivered.


Casualty and Theft

If you had the misfortune to be a victim of crime this year and suffered a loss of substantially more than $100, you can deduct the market value of your stolen property minus $100.


Alimony

Perhaps you're wondering why this isn't classified as Casualty and Theft. If you got divorced and the courts didn't like you, this one's for you.


Legal Advice

If you ran into trouble with the law this year, you might be able to deduct the cost of that speeding violation or the pliers you bought to break into your neighbor's basement. Just kidding. You can't do that. But if you hired a lawyer to resolve specific issues, such as a job or--ironically enough-- tax dispute, the government may show you some sympathy.


State and Local Taxes

Finally, you did know that you can deduct your taxes from your taxes, right? If your state, county, and/or city charge(s) income tax, deduct it from your federal tax. OR, if you sprung for that yacht this year, take a deduction on your sales tax instead. If you own a home and paid property tax, this is the place to deduct it, too.



Exhausted? Well, we're just getting warmed up. Tune in again for more tax tips for the single filer!


What other deductions do you take as a single filer? (Since this is a boring question, also tell us a good joke to cheer us up when we're frowning over our W-2's.)


Other Sources
Tax Savings for Single People
Tax Rate Schedules for Single Filers
How to File Taxes as a Single Person
Screw Uncle Same--Take Your Tax Deductions
We Know: 10 Common Tax Deductions (You May Have Forgotten to Take)
Miscellaneous Itemized Deductions You Can Take on Your Federal Income Tax Return
IRS Tax Deductions--7 You CAN'T Take
Taxes and the Network Marketer


Fun Link of the Day

The Singles Penalty: Tax Code Discrimination

Welcome to Singletude! Iiiiiiiiiiiiiiiiiiiit's.........tax time! With your host, Clever Elsie! {cue bouncy music that sounds like it's laughing at our misery}

Yes, income tax is one issue on which Singletude has difficulty being a positive blog. But optimism will prevail, even in the face of the overt discrimination we'll acknowledge today.

Move over married couples. You're not the only demographic that has a corner on tax code bias. In fact, marrieds mostly make out good on April 15, and it's singles who feel the pain in their pockets on Tax Day. Here's why in plain, simple, non-jargonistic language (which is not because Elsie thinks you're a simpleton but because she isn't Clever enough to explain it in jargon):


1. The tax rate for singles is higher across the board than it is for marrieds in the same tax bracket. This article has an example of a single and a one-income couple, both earning a total of $100,000 a year. The married man or woman is taxed at 25%, but the single has to fork over 28% just because he or she has committed the crime of singleness. That's a nest egg of $4,125 more a year for the married couple to buy a used car, hire a housekeeper, or go vacationing in the Caribbean. Doesn't sound much like justice for all.

2. If you're a single parent, you're entitled to a Child Tax Credit of up to $1,000 per child. But that credit phases out when your income hits $75,000. However, if you're married, your family can earn up to $110,000 before you're ineligible. Let's go over this again in case you're as confused as I am: If Person A and Person B each have two kids, Person A is entitled to more government handouts because Person A has more money and a spouse. Something here doesn't compute, and I don't think it's my underwhelming math skills.

3. If you're a single parent whose child lives with you less than half the year, you can't claim him or her as a dependent even though you may be covering half of his or her expenses. If your child splits his or her time equally between you and your former partner, the partner with the higher income gets to claim the child. Again, what's wrong with this picture? It's as if Dali thought up our tax system.

4. You can usually file as head of household, a move which saves you big, for any dependent you support, including kids, parents, siblings, extended family, and even domestic partners. But there's a catch. If your state outlaws cohabitation, you can't claim a boyfriend or girlfriend. Further, if you've been married for even a month during the past year, your husband or wife can be your dependent, but you must have lived for the entire year with a domestic partner to qualify for the same deduction. Obviously, filing jointly, the biggest money saver of all, is not an option. In other words, save sex for marriage, boys and girls, or Uncle Sam will take away your pocket change.

5. While single homeowners are making gains, most houses are still the property of married couples, and those married couples get a nice little break known as the mortgage interest deduction, which means these twosomes can expect reimbursement for the interest paid on their monthly mortgages. In most states, however, renters don't get a similar deduction for the cash laid out on apartments every month. Instead, up to half the income of the single renter drains into the pockets of a wealthy landlord and is never seen again.


The above examples of flaming inequity might prompt you to ask exactly what has become of the mythical marriage penalty or if it was ever real at all. It does exist, most notably when marital partners file jointly and their total income propels them into a higher tax bracket than either would have been in if they'd filed separately. But this only occurs when the partners earn roughly equivalent incomes or when they qualified separately for the Earned Income Credit for the working poor but lose eligibility with their combined salaries. However, if husband and wife have an income disparity, their tax breaks will dwarf those of singles, and the greater the disparity, the bigger the break. Despite lip service to working families and career women, Congress still prefers the stay-at-home mom model.

Now pretend for a moment that you read about the above tax system unaware that it described the United States. What kind of country would take shape in your mind? Certainly not one in which nearly half the population is single...or one in which there are cohabiting couples, gay or lesbian pairs, low-wage earners, city dwellers, or anyone who isn't part of a traditional male breadwinner suburban society. And we haven't even scratched the surface of the injustices imposed by the estate tax, insurance benefits, and social security.

Married couples claim they're entitled to bigger breaks because they have double the expenses. But the platitude that two can live as cheaply as one rings true for rent, utilities, household purchases like TVs, computers, and furnishings, and transportation if the couple is careful. So singles are the ones who really need the relief. Furthermore, marrieds have no call to complain about getting bumped into a higher tax bracket when they're still taxed at a lower rate than singles in the same bracket.

While there's unfortunately no loophole to wiggle out of the singles tax penalty, you should be wise to the steps you can take to minimize your liability as a single filer. Tomorrow, Singletude covers some of them.


What do you think about the discrepancy between tax rates for single and married filers? Can you think of a better solution?


Fun Link of the Day