ShareThisBy KARA MCGUIRE
Minneapolis-St. Paul Star Tribune
Taxes aren't typically a hot topic of conversation. But if you're a certified public accountant like 31-year-old Nate Albrecht, you can't escape tax talk come spring, even outside the office.
"You find friends you don't even remember having," said Albrecht, who has acquaintances coming out of the woodwork to tap his tax expertise.
Most questions revolve around the deductibility of certain purchases and the tax consequences of past actions. There's not much any accountant can do to change the past.
But if such conversations lead to tax planning for future years, then that's a good thing. After all, most young people are in the dark about tax topics, according to a survey by CCH Complete Tax.
For you procrastinators out there, here's a list of tax breaks and mistakes to watch for. The tips come courtesy of your young tax-preparing peers.
Be smart about education perks:
Andrea Eaton, a 25-year-old financial planner, reminds anyone taking a qualifying class _ even if it's not for a degree _ to check out the lifetime learning credit for as much as $2,000, depending on your income.
Another option is the tuition and fees deduction of up to $4,000, although a credit is almost always more valuable than a deduction. Credits reduce your tax bill dollar for dollar.
Then there's the student loan interest deduction of up to $2,500. Again, the amount you get back, if any, depends on income. That certainly makes the chore of repaying loans less taxing. (Remember, I get one bad pun per tax story.) Check IRS Publication 970 for all the details.
Low income = more credits:
When it comes to paying taxes, having a low income definitely is a good thing.
People 25 to 64 years old earning less than $39,000 may qualify for the earned-income tax credit. Check the IRS for specifics. The great thing about what's known as the EITC is that it's a "refundable" credit, meaning you can pay no tax and still get a refund. Nice.
The retirement savers contribution credit is another plus for low-wage earners. Singles making less than $25,000 can take a credit of up to $1,000 if they save in a workplace retirement plan or IRA. Double those numbers if filing jointly.
Have a phone? Take a refund:
New this year: A one-time-only telephone excise tax credit of $30 to $60, based on how many dependents you have. There is an option to manually add how much of this tax you paid for 41 months, but be real. If you haven't done your taxes yet, are you really going to dig through more than three years of phone bills?
Medical expenses add up:
If your out-of-pocket medical expenses amount to 7.5 percent of your income, you can deduct them. "I've done returns for more mid-income people and found they were missing that," said Alvig. If you're not earning much money and are uninsured, keep this on your radar screen.
Say no to a big refund:
All the young tax experts I spoke with said the most common mistake they see from their pals is getting fat refunds. When Albrecht pulls out the old "you just gave the government an interest-free loan for a year" line, his friends typically respond with the "out of sight, out of mind" line, claiming they'd spend the money unwisely if they had it all year.
Come on. With automatic savings available at most banks, that excuse is so 20th century.
Eaton said her refund-loving acquaintances "already pre-spend it" on a vacation or big-ticket item. Instead, put a large chunk to good use _ save it or pay off high-interest debt. And shrink the amount of tax taken out of your paycheck going forward.
Say yes to pre-tax savings:
"To reduce your tax, why not give money to yourself" instead of Uncle Sam, Alvig said. In addition to withholding, she's talking about pre-tax perks. The majority of 20-somethings don't save in a 401(k) or a deductible individual retirement account (IRA), which reduce your taxable income.
Setting money aside in flexible spending accounts for health care expenses and day care expenses also will give you "a better bang for your buck," she said.
Inspired to save? You have until April 17 to contribute up to $4,000 to either a Roth or deductible IRA for 2006. A Roth IRA is funded with after-tax money and wouldn't reduce your tax bite, but the money grows tax-free.
Do your taxes yourself:
Don't pay a preparer if your situation's straightforward. Most software is easy to use and accurate. Plus, if your taxable income is $52,000 or less, you'll qualify for free federal electronic filing. Only 5 percent of qualifying taxpayers used it last year. Visit www.irs.gov/efile for the details.
(Distributed by Scripps Howard News Service, www.shns.com.)
