Taxes 101: steps to make filing easy this year

With more than 60,000 pages of tax code, preparing taxes can seem a bit daunting. But, by breaking the tax return into five simple steps, the task can be easier.

• Step 1: Know your filing status. Should you file married? Or, head of household? This may seem like the easiest part of the tax return, but there are some traps for the unwary. Keep in mind, if you were married as of Dec. 31, you're considered married all year. Generally, head of household is a filing status for single parents.

• Step 2: Report all income. Everything you earn during the year, including gambling winnings, is taxable and should be reported as income. You're responsible for reporting income on your tax return even if you don't get a form reporting it for you. Remember, by reporting your income correctly now, you can help avoid a letter from the IRS later.

• Step 3: Factor your adjustments. Reduce the amount of taxes owed by factoring in deductions. Student loan interest, certain moving expenses, IRA deposits, and tuition and fees up to $4,000 can all be deducted without itemizing. For those taxpayers who do itemize, don't forget to deduct - medical expenses, costs must be more than 7.5 percent of your income in order to claim. Mileage for medical visits can be deducted at a rate of 20 cents per mile. New York State Disability Credit (listed in Box 14 of your W-2). Charitable contributions, you must have receipts for even the smallest amounts. Work expenses, Uniforms, union dues, professional publications and fees can all be deducted if they total more than 2 percent of your income. Investment expenses, tax preparation costs, net losses on investment activity. These also must total more than 2 percent of income.

• Step 4: Take credit. While a deduction reduces the amount of income subject to tax, credits lower your tax bill dollar for dollar. Taxpayers can further decrease their tax liability by claiming these common credits:

• Child Tax Credit: Reduce your tax owed by $1,000 if you have a child under the age of 17.

• Child Care Credit: If you pay child care fees while working or going to school, you're eligible for a credit of 20 percent to 35 percent of the amount paid up to $3,000 for one child, or $6,000 for two or more kids.

• Higher Education Credits: Paying college tuition may make you eligible for a tax benefit up to $1,500 through the Hope Credit, and a savings of up to $2,000 through the Lifetime Learning Credit.

• Residential Energy Credit: Efficient home improvements such as storm windows, a new furnace, or a new water heater, bring a tax credit for tax year 2007.

• Mortgage interest and home equity lines of credit also may be deductible when you itemize. More on this in a future article.

• Step 5: Review. Once you've completed your return, help speed the delivery of your refund and prevent a letter from the IRS by: verifying all names and Social Security numbers are correct, ensuring all entries match your records, signing your return and both spouses should sign if you're married filing jointly.

For more information about smart tax filing, contact Mark Smith, an H&R Block tax professional in Amherst, at the University Plaza office by calling 838-9641.