I'm a young, single, and making decent money...need tax tips?

Question

Why not ask here right? In any case, I found out last year just how much the IRS sucks when you make over 30k yearly, and are single with no dependents. This year I've made even more money so I'm not really looking forward to filing taxes. I've been doing a lot of reading on the subject but have yet to find a good source for tax help for young people in my situation. I've heard opening an LLC would entitle me to some additional tax breaks but I don't know exactly what those are. I've decided to stop wasting money on buying books. I need solid, concise info that doesn't take a tax law degree to understand. Other info:

-I don't have any retirement accounts yet. I DO know I can open some IRA's etc that are tax deferred. I'm working on it

-I don't think I can afford a financial adviser (yet), but is that the best way to go?

-File a DBA? Open an LLC? Which is best?

Any help on this would be greatly appreciated. If you happen to know some good online resources that would really help too

Thank you both for your answers so far, I'm not looking to cheat on my taxes. As a matter of fact I want the opposite, to make sure when I file it's bulletproof. The DBA/LLC idea was taken from this article I read on MSN Money:

http://articles.moneycentral.msn.com/Taxes/TaxShelters/TheUltimateTaxShelterYourOwnBusiness.aspx

Seems perfectly legal (to me). Again, this is all a learning process for me so I'm highly grateful for the advice.

I also bought this guy's book (How to pay Zero Taxes 2006)...

Let's just say my eyes hurt :(

Just wanted to add that I do not own my own business. Though hopefully in the future I will.

I've learned more here reading everyone's comments than I have after some 2-3 hours in the books. Question is still open, so feel free to add anything else. Thanks again.

Answer 1

You got it, retirement accounts are the best thing you can do. If your employer has a 401k or similar plan, enroll and contribute as much as you can. That comes straight off your taxable income. After that, open a ROTH IRA and contribute as much as you can each year, up to $4000 this year and another $4000 next year. (You have until April 15th, 2007 to make your 2006 contribution.) Unfortunately the ROTH contributions are not tax deductible, but you won't regret it in the end. That money will grow tax free until you retire, and it will be worth A LOT.

I would steer clear of complicated things like LLCs if I were you, unless it makes sense for non-tax reasons. It will probably be a headache to set up and maintain, and it may throw up red flags to the IRS.

When you do your taxes, make sure you take all the deductions available to you. Software like TurboTax will "interview" you to help catch deductions you might have missed.

If you're feeling generous, you could make a tax deductible contribution to charity. It doesn't even have to be cash; you can clean out your closets and garage, donate your old junk to Goodwill or Salvation Army, and take a tax deduction for the full value of the stuff.

Answer 2

First off if you are not in a business to make money you should not be using a false corporation or dba, if the IRS audits you and finds no business and only expenses you could be in serious trouble.

Second, saving for a retirement at a young age will only benefit you in the long run. If you start now and can not save as much when you have a family (if you choose) then you will be steps ahead in saving for retirement.

If the company you work for has a 401K or similar that will also contribute a percentage if you make a contribution there is nothing wrong with that, it is free money. Also, contributing to a 401k will lower your income, therefore less taxes. You can also open a IRA with deferred taxes (ie Traditional) which also lowers your tax bill. Or you can open a Roth which taxes you now but not at the time of distribtion.

If you are at the age that you could be interested in owning a home that would be something to look into - investment as well as several items being tax deductable example being
Mortgage Interest
Property Taxes
when you itemize instead of taking the standard deduction it usually helps your tax liability.

Financial Advisors vary in fees mine charges $100 per hour to discuss things like this - A good financial advisor can probably answer in 1/2 hour. Some even have a free consultation so check around.

Sounds like you are doing your homework good for you!

Answer 3

The dba versus the LLC is not a tax saving move. The tax benefits are the same in either case. The difference is, and I assume that you are self employed, liability protection. The LLC gives you the same protection from liability that operating your business as a corporation would give you but without the cost of having to incorporate and file a corporate return each year.
The best tax saving idea for everyone is buying a house using a mortgage. You get to deduct the real estate taxes and the mortgage interest which should be enough to enable you to itemize your deductions.
The IRS is a good start. However, if you are self employeed and don't have employees you can do much better. You could do a single member 401K that would allow you to put away up to $15,000 and deduct it on your tax return. If this isn't enough you could do a SEP-IRA in addition to the 401K that would allow you to contribute and deduct a net 20% of you net self-employment income and deduct it also. With a $30,000 net schedule C income you could contribute over $20,000 to retirement accounts and deduct it on your tax return.
As a self employeed individual you would be paying self-employment tax on your schedule C earnings. One-half of this is deductible on the front of your return.
If you are paying health insurance a self-employed individual is allowed to deduct 100% of the premium on the front of your return without any reduction like there would be on schedule A.
I don't think you need a financial advisor I think you need a session with a good CPA who can lead you through the tax laws.
If you want to do a 401K you will need to adopt a plan and fund it with some dollars before the end of December. You can decide haw much you can afford to do and fund the remainder by the due date of your return.
Good Luck it sounds like you are really making it happen with your business.

Answer 4

If you are single with no dependents, you should be contributing as much as you are allowed to a retirement account. Start with your employer's 401(K) if the offer matching contributions. Consider buying a house. The interest and property taxes are deductible, and if you choose well, the home will increase in value. As for the LLC/DBA, unless you are operating an actual business, there is no legitimate reason to create a business entity. Creating a company solely for tax purposes is fraud.

Answer 5

I don't know. I'm in the same boat without the problems and I do my own taxes that involve both types of dividends and foreign taxes.

Start by having them take more money out of your check for taxes. You want to get near zero owed.

You can reduce your gross through a 401K plan. You can also reduce your gross income by having your taxes pay for your insurance. You just won't get the social security, but my statement says I'm not going to get much of that anyways. I shave off about $6,000 off my gross doing this.

If you open a Roth IRA, fill it with ETFs that have dividends and focus on foreign markets. You can deduct up to $300 of those foreign taxes that you won't see on your profits onto your U.S. taxes (line 47 on the 1040). This way you get a tax deduction without having to pay taxes on the profits. The foreign tax credit is a big deal since it's nearly after everything else.

I've got it down to where I pay about $200 more to the IRS and $80 to California.

You can look at the past 1040 form and look at the deductions. Keep track of the deductions you think you will use and then it's just a matter of plugging in those numbers. If you buy and sell stocks, keep that Schedule D up to date.

Answer 6

Assuming you're paid each and every 2 weeks, $2000 = $seventy seven/verify. you will get a $2000 refund if and provided that your withholding is $seventy seven in line with verify extra beneficial than your tax criminal duty. you're extra beneficial off getting the $seventy seven in each and each verify than loaning it to the government interest loose. That stated, you fairly need to understand a thank you to decrease your tax criminal duty. that's the quantity the IRS certainly retains. Contributing the optimal on your 401(ok) or an IRA is a strong start up. in case you do no longer own a house, purchase one. you're able to have the skill to discover some thing for no longer plenty extra beneficial than hire and your assets tax and loan interest are deductible. you're already paying those on your landlord besides.

Answer 7

I've read the article you linked. Please don't go there. The people who win those cases are the ones who can afford high-priced attorneys. Much better to invest in a retirement account. Speak to a financial adviser to see if municipal bonds are a good investment for you. They are free of federal tax and some states do not tax bonds of their own state either.

For other tax-saving ideas, speak to a reputable Certified Public Accountant or Enrolled Agent.

Answer 8

You need to be in a ROTH IRA, that does not save you money on taxes now, but all the interest that you earn is TAX free!

Use Turbo TAX, it is very good!

Don't cheat, the interest will make you think 100 times and wish 1,000,000 more later!

Answer 9

buy real estate