Tax Basics: Consider All Your Options
NEW YORK (TheStreet) -- When preparing your tax return you are often given choices on how to treat certain situations. Here are some examples:
- File Married Filing Joint, or Married Filing Separate.
- Claim a personal exemption for a dependent student, or allow the student to claim an education tax credit on his or her own return.
- Claim an "above-the-line" adjustment to income for tuition and fees; an itemized deduction as an "employee business expense" if applicable; or an education tax credit.
- Depreciate a new business asset, or claim a Section 179 expensing deduction.
- Itemize your deductions, or claim the standard deduction.
- Deduct state and local income tax paid, or state and local sales tax paid.
- Deduct state and local sales tax paid from the Optional Sales Tax Tables, or claim the total actual sales tax paid.
When faced with choices, do separate tax calculations for each option to see which results in the lowest tax.
Consider how a federal choice will affect your resident and nonresident state and local tax returns. Choosing one option may save you $50 in federal taxes but cost you $100 in state income taxes.
What you want to do is select the options that will let you pay the absolute least amount of combined overall federal, state and local income taxes.