Frequently Asked Questions
What special deductions can I get if I'm self employed?
You may be able to take an immediate expense deduction of up to $139,000 for 2012, for equipment purchased for use in your business, instead of writing it off over many years. Additionally, self-employed individuals can deduct 100% of their health insurance premiums. You may also be able to establish a Keogh, SEP or SIMPLE plan and deduct your contributions (investments).
Can I ever save tax by filing a separate return instead of jointly with my spouse?
You sometimes may benefit from filing separately instead of jointly. Consider filing separately if you meet the following criteria:
- One spouse has large medical expenses, miscellaneous itemized deductions, or casualty loses.
-The spouses' incomes are about equal.
Separate filing may benefit such couples because the adjusted gross income "floors" for taking the listed deductions will be computed separately.
What other tax-favored investments should I consider?
For growth stocks you hold for the long term, you pay no tax on the appreciation until you sell them. No capital gains tax is imposed on appreciation at your death.
Interest on state or local bonds ("municipals") is generally exempt from federal income tax and from tax by the issuing state or locality. For that reason, interest paid on such bonds is somewhat less than that paid on commercial bonds of comparable quality. However, for individuals in higher brackets, the interest from municipals will often be greater than from higher paying commercial bonds after reduction for taxes.
For high-income taxpayers, who live in high-income-tax states, investing in Treasury bills, bonds, and notes can pay off in tax savings. The interest on Treasuries is exempt from state and local income tax.
What can I do to defer income?
If you are due a bonus at year-end, you may be able to defer receipt of these funds until January. This can defer the payment of taxes (other than the portion withheld) for another year. If you're self employed, defer sending invoices or bills to clients or customers until after the new year begins. Here, too, you can defer some of the tax, subject to estimated tax requirements.
You can achieve the same effect of short-term income deferral by accelerating deductions-for example, paying a state estimated tax installment in December instead of at the following January due date.