Personal Tax Planning

Financial Planning Are you or your spouse self-employed or own a business? What kinds of income do you and your spouse have? What kind of deductions do you and your spouse have? Was there any out of pocket medical expenses? Do you plan to itemize those deductions? Do the children work? Do the children file income tax returns? Do the children live with you? Did you pay more than 50% of the children's support? Do you pay more than 50% of your fathers support? What was the fair market value of the inherited property at your father's death, or when it was given? What kind of retirement accounts do you and your spouse have? What kinds of investments do you and your spouse own? Do the children have education expenses you paid for? Options Options in reducing taxes on adjusted gross income include starting a work 401K, or increasing the amount contributed to it, contributions to retirement accounts, or health savings accounts.

Refer to lines 23-35 on Form 1040. Charitable contributions is another way of reducing AGI. Refer to publication 17. For dependent exemption explanation for the children and the father refer to publication 501. This can easily be found at www.irs.gov under forms and publications. For the gift, or inheritance, of the property, renting the property allows for deductions, such as repairs, maintenance, mortgage interest, and depreciation. If you manage the rental you can deduct up to $25,000 of the rental costs from taxable income.

If you hire someone, you can only deduct the rental expenses, such as advertising, salary or fee, etc. If the property is sold, you pay capital gains tax on the difference between the value when you took ownership and the sales price. If you live on the property 2-5 years prior to selling, you get a tax break up to $50,000 of the taxable gain. If you rent before selling, all the gain is taxable. There are different retirement accounts that have varying tax consequences and requirements.

Refer to www.bankrate.com/brm/news/sav/2006011a1.asp for an explanation of each one. Investopedia.com has a wealth of information concerning investments and how to get started. It also explains the different types of investments, the tax consequences of each one, and asset allocation measures in an investment.