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Wednesday, March 02, 2005

Taxing times

I'm organizing my files with articles on tax credits and deductions to make sure I take advantage of everything possible next year. Items that are going to help me tax wise for my 2005 taxes are-
Roth: I hope to fully fund this for the first time. Advantages- I can use the $ if needed for downpayment on my first house, or for grad school if I decide to go. Also can be used for the retirement savings tax credit.

403(B): I know, I know, so many people rant on annuities. However, through my plan we have very low cost annuities availaible from Vanguard, TIAA-Creff and a couple of others and as long as the fees and plans are carefully researched they can be a valuable addition to any retirement package if they are available to you. This will be automatically deducted from my paycheck each month. It will be a few months before I open this as I am finishing off my student loan payments first. Before anyone adds their two cents-- my student loan is at 7.5 % not the 3% or less some of you are getting today so I do want to pay it off as quickly as possible.

Student loan interest: I lost out on this for a couple of year before they changed the rules. If you pay any student loan interest you need to take advantage of this, you don't need to itemize deductions to do so.

Retirement Savings Tax credit: More on this later, but suffice to say that this is a great thing and if you are not yet aware of it look it up in the tax code! http://www.irs.ustreas.gov/.

Med-flex spending account: The good thing- once again this will lower my AGI, and it is taken out of my paycheck each month. The bad thing- its a use it or lose it deal, so I have to make sure I keep receipts and turn them in to get reimbursed. This year I'm using it for the dentist, to pay for what my dental insurance doesn't cover (it pays 80% of my badly needed crowns, upt to $1000 and I have a $200 deductible). Next year, eyeglasses or lasik eye surgery (I'll have a eye exam later this year to see if this would be good for me.) If I decide on eye surgery I'll need to increase my med-flex by abbout $300/month if possible.

Medical deductions: Well, if I have Lasik next year I will be sure to itemize because I know my medical deductions would be greater than 7.5% of AGI, esp. after my AGI is reduced from my other tax savings/credits listed above. For the first time I need to keep careful track of any medical and health recepts. IRS publication 502 has a detailed list of what you can and can't use as a medical deduction, and my med-flex plan uses the same list.

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