Taxes. If the word makes you wince, you’re not alone – even America’s biggest corporations have to pay them. Still, some corporations (like Conoco-Phillips) pay a whopping 42% effective tax rate, while others (like GE) pay a rate in the single digits. Click on the infographic above to expand it and learn who’s paying what.

You’ve heard that one before, right? It’s the sort of obnoxious pronouncement I would have made until, well, last week. There’s no shortage of pundits who’ll lay the no-refund gospel on you: just try Googling “giving the government an interest-free loan.”

All this haranguing has had absolutely no effect on the US population: the average refund has hovered around $3000 for the last three years, according to the IRS.

Well, I’m abandoning the Church of No Refunds (nickname:” the Zeroes”). Here’s why.

Paying the right amount of tax is too hard

Even when I was talking a big game about never getting a refund, my 1040 told a different story. In the past three years, my wife and I have gotten a $425 refund and a $1500 refund. Then, last year, we owed $1200. In fact, we underpaid so much last year, we were assessed a penalty…of $1. Seriously.

If only one spouse in your family works, and they receive a W-2, and you know ahead of time what tax credits you’ll be taking in the coming year, and there are no changes in the tax law, it’s easy to have a near-perfect amount in taxes withheld from your paycheck. Just use the IRS Withholding Calculator, submit a new W-4 if necessary, and you will be welcomed into the arms of the Zeroes.

Here in the real world of self-employment, two-income families, taxable investments, stimulus bills, and health care credits, you’re lucky to get within $1000 either way.

I thought I could do better. Last week I sat down with a sheet of liturgical documents (aka IRS worksheets) to try and estimate my wife’s tax and my self-employment tax down to the last dollar. After three hours of this, I was desperate for some tax relief (aka beer).

 An interest-free loan isn’t so bad when the alternative is interest-free savings

Remember the good old days? I mean early 2008, of course. People had friendly debates over whether there was a housing bubble, and online savings accounts paid over 5% interest.

Back then, it might have made sense to take care not to (say it with me) give the government an interest-free loan. That $3000 average refund comes out to $250/month. If you set that money aside of the course of the year in an account paying 5%, by the following April you’d be ahead $122 compared to getting a refund.

Nowadays, give me a break: at 1% interest, you make $24.

 ’Tis better to receive than give

Even people who warn against tax refunds break out in stupid grins when they receive one. Similarly, having an unexpected tax bill hurts, even if you have the money set aside to pay it. (And plenty of people don’t.)

Furthermore, there’s some evidence that people use their tax refund for good, not evil. In a survey last year, Bankrate asked Americans how they’d be using their tax refund. Over half (58%) said they’d save it, invest it, or use it to pay down debt. If the money had shown up biweekly in these people’s paychecks instead of all at once in April, would they have deployed the windfall to similarly angelic ends? Of course not.

Most personal finance articles go something like this: you, the reader, are doing something wrong; I, the writer, will explain how to do it right. Consider this an antidote. Honey, you were right and I was wrong. I owe you a cold one. (Yes, I always call the American taxpayer “honey.”)

After wrangling with IRS paperwork for hours last week, I determined that I’m behind on estimated tax payments again this year. Great. So I went to my favorite personal finance discussion site, the Bogleheads. These people are much smarter than me and are particularly gifted in the area of taxes. Are they parishioners of the Church of No Refunds?

Nope. Mostly, people just like to get within $1000 either way and avoid paying a penalty.

If it’s good enough for them, it’s good enough for me. Next year I’m doing what normal taxpayers do. I’m going to deliberately overpay.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.

While counties vary in how and when property values are re-assessed, most have a process that takes place at least every five to eight years. You’ll know it’s underway when you receive notification from the county auditor’s office by mail. If you’ve been paying taxes on the inflated home values that dominated the market before the housing bubble burst, your notification may actually lead to a lower tax payment.

Nevertheless, despite the continued lull in the housing market’s recovery, some homeowners are receiving news from their county auditor that property values are slated for an increase. As a result, property taxes go up, too. Here is an explanation of your options if you are notified that your home value has been reassessed to an amount higher than what you believe the property is worth:

Your Options

All counties allow the option for homeowners to react to reassessed values, whether up or down.  Start by doing a little sleuthing of your own, and use your county auditor’s website to research the home values of similar properties in your neighborhood (this information is free and public record). Gauge the “going rate” in your market by researching comparable home sales in your neighborhood, ask neighbors what value the county auditor has newly proposed for their property, and explore sites like Zillow and Trulia.

Once you’ve gathered real value data, compare it to the new figure your country auditor has determined—and keep in mind that short sales and foreclosed property figures are typically not considered as a valid form of value comparison. If you still feel confident that there is a discrepancy between the “real” and reassessed value of your property, Marsh Bilby of Marsh Bilby Appraisers & Consultants, LLC says the first step is to understand how the appraisal process works, and the potential costs that it carries.

Unlike the home inspection that was conducted when you bought your property, Bilby explains that appraisal is actually based on a math-appraisal technique using statistics-based evaluation models, and at times, walking audits in a neighborhood.  The appraiser will likely never see the inside of your home in determining the appraised value, but instead bases the figure on a variety of data points like square footage, county information, and the other fees that accompany a home sales transaction, like tax and title, real estate and broker fees.

When considering challenging a property reassessment Bilby advises using a simple cost-benefit analysis approach, much like you would when considering whether or not to refinance a property.

Costs and Savings to Consider

Start by figuring the difference between what you feel the value of the home is, versus the reassessed value proposed by the county. For example, if your home’s proposed “new value” is $300,000 but you believe that it’s worth $225,000-there is a sizeable discrepancy of $75,000.

Counties use a “millage rate,” or the amount per $1,000, to calculate taxes on property. To analyze your unique situation, you’ll need to identify the exact millage rate for your area. For the sake of example, assume that a millage rate of two percent for the above scenario. The $75,000 discrepancy in value would lead to an annual property tax increase of about $1,500, if the homeowner choses to accept the reassessed value. You should also consider any special exemptions that you qualify for, such as homestead exemptions, or owner-occupied exemptions, which vary by homeowner situation and location.

Once you’ve run the basic numbers, consider how long you plan to live in the property to determine whether the proposed new amount is worth challenging. In the scenario above, a homeowner who intends to live in the home for the next five years would potentially pay about $7,500 more in property taxes.  If you decide to move forward once you’ve considered the long-term costs, the next step is to seek a qualified, licensed appraiser.

Bilby says that a typical appraisal fee is around $400, and could potentially be higher for complicated properties, like those with pools or located on a waterfront. Bilby also stresses the importance of finding an appraiser who has several years of experience, and understands that the property is being appraised because of a new county auditor value. Securing an appraiser who is well versed in challenging county auditor appraisals is critical, as it may be necessary for the appraiser to accompany you to county auditor board hearings, to defend the results of his or her appraisal, and reasons for the variance from the county’s value.

Bilby says to keep in mind that you have no way of determining the outcome of contesting a reassessed value (and that the fewer comparable properties there are, the less certain the answer becomes). Should the county decide that their figure is accurate—you’ll have spent at least $400 for an appraisal, in addition to any additional time that the appraiser will bill for attending any required auditor hearings and preparatory fees- but still pay more taxes. On the other hand, not contesting an amount you believe is unfair could lead to paying thousands more dollars in taxes.

If you do intend to sell in the next few years, it’s also important to understand that your property value as determined by the county won’t play much of a role in terms of your sale price. Should you contest the value and win a lowered home value with the auditor, but your neighbors accept the higher value, you won’t be “haunted” by the lower value down the road. Bilby says that a true real estate professional will recognize that there are a lot of inaccuracies in the process, and will use many data points to determine the fair market value of a home.

Stephanie Taylor Christensen is a former financial services marketer based in Columbus, OH. The founder of Wellness On Less, she also writes on small business, consumer interest, wellness, career and personal finance topics.

Should you pay off your mortgage as quickly as possible? Or are you better off paying it over 30 years and investing any extra cash? A lot of misinformation can be found among the financial “experts,” and one of the favorite is this argument:

Keep your mortgage in place to maximize your tax deduction.

Why is this bad advice? The math simply does not add up. For example, a family paying a federal rate of 28% plus a state rate of 5% is liable for 33% of taxable income. So if your total mortgage interest is $12,000 this year, it comes out like this:

$12,000 interest – 33% tax liability of $3,960 =  $8,040 net after-tax interest

In other words, even after tax benefits, you are still paying 67% of the gross interest cost after allowing for the tax deduction. If you could eliminate the entire mortgage debt, you would save the after-tax interest of $8,040 per year.

A second myth is that you are better off investing your cash elsewhere. The argument is:

Invest any extra cash to increase your investment income.

There is also a problem with this argument. That extra investment income will be taxable, so even if you could match your 5% mortgage with 5% interest income, is the risk comparable? Your home is insured, you maintain it, and it provides many benefits beyond just being an investment. If you make 5% by investing elsewhere, what level of risk exposure do you accept? Chances are that the risk you take to earn 5% is not as valuable as the investment risk of paying 5% on your home mortgage.

Is that 5% cost really such a big deal? Yes. If you are paying 5% on a 30-year fixed rate mortgage starting at $100,000, your total interest cost is $93,259, so that your $100,000 mortgage costs nearly double to get paid off.

Some additional startling facts about your mortgage (all based on a $100,000, 30-year fixed-rate mortgage):

- At the end of five years, you have only paid off about 8% of your mortgage. Considering that most people move to a new home after five years, that means your 60 months of payments were almost entirely interest.

- At the end of 20 years, your mortgage is only one-half paid off. The other half is repaid over the last 10 years.

- Adding $50 extra to your payment each month takes five years off the repayment term, reducing it to 25 years and saving about $18,000 in interest.

Mortgage interest is calculated based on the remaining balance each month, so the higher your balance, the more of your payment goes to interest. This is why paying off as much as you can early on — a process called mortgage acceleration — is a valuable investment. If your mortgage is fixed at 5%, every dollar you prepay today yields you a reduced interest of 5% at a compounded rate. That is going to be a much smarter and safer investment than you can make anywhere else.

Michael C. Thomsett is author of over 60 books, including Annual Reports 101 (Amacom Books Press), Trading with Candlesticks (FT Press) and the just released new book, Getting Started in Stock Investing and Trading (John Wiley and Sons). He lives in Nashville, Tennessee and writes full time.

This post was provided by Minyanville.com.

Photo credit: woodleywonderworks

Photo: Jasleen Kaur

With healthcare costs rising, and companies passing more of the burden onto employees, expect out-of-pocket medical expenses to continue ballooning.  The good news is that there is a way to ease the pain if you are taking on a lot of expenses yourself.   It’s time to check your bills and insurance claims to see what you spent this year, and how much of it came out of your own wallet.  Whether you are covered by your employer or are one of the growing many who are opting to get individual coverage that is reimbursed by your employer, use these tips to see what deductions you may be able to take.  You might be surprised.

Tip 1:  Use the 7.5% Rule

If you took a pay cut last year or were unemployed temporarily, your lower income could qualify you for this even if you never qualified in the past.   Taking a closer look at expenses will show if your lower income now meets the 7.5% rule.

Use this quick calculation to see what your expenses must be in order to qualify for the rule:

[YOUR GROSS ADJUSTED INCOME] x 0.075 = ____________________

Now Tips 2-10 will tell you what things to look for to help you determine if you meet the 7.5% rule.  If you do spent 7.5% of your income on medical expenses, check to see if it’s more than the standard deductions.  If not, you’re better off just deducting using the standard deduction.

Standard lump sum deductions are:

• -Single or filing separately if married:  $5,700
• -Head of household with dependents:  $8,400
• -Married and filing jointly: $11,400 (Add $1,100 for each spouse 65 or older)
• -Self-Employed:  If you’re self-employed, then you can deduct 100% of the premium cost from your income.  The 7.5% rule does not apply to you.

Tip  2:  Visitors’ Rights

Whenever you get a service or treatment, the cost you pay out of pocket for that visit is deductible.  This includes co-pays or what you have paid from your plan’s annual deductible (it’s deductible, get it?).  Look for any of these services in your medical history to include:

• -Doctors visits, examinations, treatments
• -Dental visits
• -Eye exams
• -Lab fees
• -Surgery
• -Hospital care

Tip 3: Medications

It’s nearly impossible to go through the year without having some medication prescribed to you.  If you have a chronic condition, the cost to fill these can start to stack pretty high.  Take an inventory of your prescriptions either on the explanation of benefits your insurer provides, or by contacting your pharmacy (or multiple, if you filled your meds at more than one company).  What to include:

• -Prescriptions
• -Birth Control pills
• -Insulin
• -Over-the-counter drugs that a doctor has prescribed to you (NOT ones you bought without a prescription)

Do NOT include:

• -Over-the-counter drugs (such as aspirin or cold medication, even if a doctor recommends it.  A recommendation is not necessarily a prescription  The only exception: insulin)
• -Vitamins or supplements
• -Any medications you acquired from another country (e.g. Canada or Mexico)

Tip 4:  Going the Distance

Travel to and from the doctor’s office or the hospital for treatment can rack up if you have frequent health treatments…or accident-prone children.  The good news is that you can take 16.5 cents per mile driven for each medical visit.  Didn’t record your mileage at the time? Calculate the miles by using Google maps, then apply this distance for each office visit.  If you took public transportation, include the fare instead.  If there are parking fees, which many hospitals now impose, you can deduct those as well, and don’t forget to include any tolls you paid along the way to or from these visits.  Airfare to another city if seeking medical services, including up to $50 per night for lodging, is also a medical tax deduction.  This does not include days you take for vacation or pleasure on this trip, but nice try.

Your checklist:

• -Calculate 16.5 cents per mile (rate for 2010 taxes)
• -Parking and tolls
• -Airfare/bus fare
• -Up to $50 per night lodging for trips required for treatment

Tip 5:  Eye of the Beholder

While visits to your eye doctor may be a more obvious health care tax deduction, many other costs associated with taking care of your eyes are also tax deductible.  If you have a vision problem, or have worn either contacts or glasses, for a while, this is good for you.  Look for the following eye health-related items to deduct:

• -Contact Lenses, including maintenance such as saline solution and enzyme cleaner
• -Glasses
• -Laser eye surgery
• -Radial keratotomy

Tip 6:  Dental Deductions

Believe it or not, any time you seek dental treatment, whether you are simply getting a cleaning or undergoing a more advanced dental surgery, you can add these to your tax-deductible expenses list. Things to look for:

• -Cleanings
• -Treatments
• -Artificial teeth (Veneers and dentures can be a grey area, and can often only be included if it necessary to improve a deformity related to disease or treat a condition, and may require a diagnosis.  It would be best to call the IRS at 1-800-829-1040 to walk through your particular situation to determine if these qualify)

Because simply having teeth is not a condition, everyday care items such as toothbrushes, paste, floss, and mouthwash are NOT to be included in your health-related tax deductions.

Tip 7:  Alternative treatments

Sometimes traditional medical treatment doesn’t do the trick for specific conditions.  If you are seeking any of these treatments as an alternative or supplement to treat a medical condition, then you may deduct these health related costs.

• -Acupuncture for medical reasons
• -Chiropractic treatment for medical reasons
• -Therapy
• -Psychologists, psychoanalysis, and psychiatric care
• -Christian Science Practitioner

Some treatments such as going to therapy or to an acupuncturist can also be a grey area.  These can be a medical care expenses only if it is to treat a diagnosed condition, and must be prescribed treatment rather than simply a doctor’s recommendation.  For these situations, it would be best to call the IRS to determine if these qualify.

Tip 8:  Medical Equipment

Some conditions require additional help beyond a doctor or medication, and involve purchasing support equipment.  These, including equipment added to a home or vehicle, are also health care expenses that can be tax deductible.

While this is by no means an exhaustive list, here are just some examples of what is deductible:

• -Crutches
• -Hearing Aids
• -Oxygen
• -Blood/glucose monitor
• -Artificial Limbs, prosthetics
• -Wheelchairs
• -Guide dog or other service animal (buying, training and maintaining)

Tip 9:  Premiums

This one can be a little bit tricky.  There are certain limitations that should be followed.  If you are employed and your employer sponsors your health insurance, then only include medical and dental premiums if they are included in Box 1 of your Form W-2.  If not, your premiums are already taken from your salary pre-tax, and therefore cannot be deducted.

Now if you are self-employed, 100% of your premiums are tax-deductible and for the first time for the 2010 tax season, so are Medicare contributions, as we previously mentioned.

Premiums can be included for policies that cover:

• -Hospitalization, surgery, x-rays
• -Prescription coverage
• -Dental coverage
• -Prepaid Insurance premiums
• -COBRA

Do NOT include policies for:

• -Life insurance
• -Policies for payment in place of lost earnings,
• -Policies for loss of life or dismemberment
• -Supplemental insurance (e.g. medigap)

Tip 10:  Baby?  Baby!  No-baby.

Pay attention, ladies…and men.  Whether you are planning for a pregnancy, or trying to prevent one, the costs associated with your efforts can be a medical tax deduction, including:

• -Pregnancy test kits
• -Birth control pills
• -In-vitro fertilization (including the cost of storage for both egg and sperm)
• -Sterilization such as vasectomy or tubal ligation (aka “getting tubes tied”)
• -Surgery to reverse sterilization
• -Abortion
• -Midwife for delivery (If they are a registered nurse, they would be categorized in the medical service category, and if not, they could still fall under nursing services.)

Tip 11:  Repeat for Dependents

Now that you have done this for yourself, use the same checklists to tally up related costs for your dependents and spouse.  If you paid for medical expenses for a family member that does not qualify as your dependent (e.g. adult child, or elderly parent), you may be able to deduct those medical expenses.  Something new for 2010 filings: you can deduct medical expenses paid for your child up to age 27, even if they no longer qualify as a dependent, nor are covered by your health plan.

(And for future planning, try to bunch elective medical procedures into years that you’ll qualify for a medical deduction.)

Now, here is a tricky part.  If you are sharing the cost of a loved one with others, use caution.  You may only write off the medical expenses that you pay directly.  Say, if your brother pays for your mom’s expenses in full and you reimburse him later, you cannot write that payment off.   Also, your brother couldn’t write off the whole expense, only the portion he was not reimbursed for.  So he wasn’t being sneaky and trying to get the full write off, but you aren’t getting the tax deduction you could be.  Plan carefully.

Speaking of planning, when it comes to elective procedures (a knee surgery, for example), try to bundle all of them for your family into one tax year so you qualify for the deductions, assuming your cash flow allows you to do this.

What you can NOT deduct:

Just because something is good for you, doesn’t mean it can be tax deductible.  While a gym membership will help you get in shape (in theory) and a vacation might improve your mental health, unless you have a prescription for these, they are not a medical tax deduction for you.  You should keep the following off your returns unless you meet the exceptions:

• -HSA-, FSA-paid services (Health Savings Account, Flexible Spending Account).  FSAs are contributions that are already pre-tax, and HSAs are deducted separately.  Use IRS Publication 969 for reference
• -General health-related vitamins or supplements, etc., unless with a doctor’s prescription
• -Over-the-counter drugs (such as aspirin or cold medication, even if a doctor recommends it.  The only exception: insulin)
• -Everyday personal use items unless used for an illness (you can’t write off your toothbrush)
• -Gym or spa memberships
• -Weight loss programs (unless prescribed to treat a diagnosed condition such as obesity)
• -Vacations (even if it would improve your general wellbeing)
• -Cosmetic surgery (unless to repair a deformity caused by a condition or accident)
• -Teeth whitening
• -Hair transplant, or hair removal
• -Babysitters, childcare, or diaper service for a healthy child
• -Medical marijuana or other controlled substance (your state may allow it, but it’s still a federal violation. Don’t go there.)

More Info

Now that you have itemized your medical expenses using tips #2-11, go back to the first tip to see if the itemized deductions you just calculated are at least 7.5% of your adjusted gross income AND are more than the standard lump sum deduction you would qualify for.  If the itemized deductions are ONLY 7.5% of your income but NOT higher than the standard lump sum, you are better off taking the standard deduction.

This list is by no means exhaustive, so find more scenarios and details on additional tax deductions at IRS publication 502.  It is always best to seek the advice of a CPA when dealing with complex tax situations, so do forward this article to yours to start the conversation and to avoid potential misinformation.

Rebecca Woodcock is an entrepreneur and cofounder of Cake Health, a free online tool for managing your health insurance. You can connect with her on Twitter and Facebook.

photo: brianjmatis

Waiting to file your taxes because you can’t pay the bill? If you owe the IRS money, you are actually part of the minority: according to the IRS, nearly three-quarters of taxpayers received refunds in the past two years.

But don’t panic. “The world isn’t ending because you owe taxes,” says Jim Sharvin, a CPA in Torrance, Calif. In fact, the IRS would loan you the money to cover your tax bill, he says. “It’s your instant loan approval company.”

But before you think about payment plans or loans from any other source, focus on filing on time. Failure to file your tax return or file for a six-month extension can cost you a penalty of 5% per month up to the first five months.

For example, if you owe $2,000 and you’re a month late, you just cost yourself $100. That’s equivalent to a 60% annual interest rate! And that’s without the additional government interest rate, currently at 4% plus the .5% failure to pay fee that both start accruing on tax filing day, which this year is April 18^th.

There are limited exemptions, such as active duty military if serving overseas, certain natural disasters or medical conditions. If you have an extreme circumstance for not filing on-time, contact the IRS to appeal late fees.

Payment Plans

Once you’ve completed your tax return and know what you owe, it’s time to consider payment options. The easiest, of course, is to dip into any savings you have set aside (ideally, for that specific purpose). If you don’t have all of the money saved up, consider paying at least a portion on what you owe.

“You may think you owe $2,000 and think ‘I can’t afford to pay $2,000,’” says Sharvin. But paying $200, $400 or $500 will save you interest and failure to pay penalties on that portion of what you owe to the IRS.  With a $200 initial payment, you’ve reduced your debt to $1,800.

If you pay off your balance within 90 days, you can send in the money as you can to the IRS. As long as you filed on time, the only additional charges you are responsible for is the .5% failure to pay fee per month plus the interest rate, beginning on April 18^th.

So let’s say you filed your taxes on Feb. 18^th and you found out you owe $2,000. You send in $200 right away. Then you make a payment on March 18^th of $600. On April 18^th, you send in a payment of $600 again. You send in your last payment of $600 on May 18^th. With an annual interest rate of 4% plus your .5% failure to pay penalty, you now owe $2.28 in interest and penalties. However, if you started making the same three payments on May 18^th after sending in an initial $200 payment, you’d owe around $14 in interest and penalties.

If you don’t have liquid funds available within 90 days of filing and you owe less than $10,000, Sharvin says, your best borrowing option is an IRS payment plan. There’s currently a fee of $39 to begin. Simply go to IRS.gov and fill out an online form with what you can afford to pay. Generally, the IRS wants you to pay off your loan within three years.  So if you owe $1,800, you could set up your payment plan for 36 equal payments of $50 plus interest and penalties. The good news is, once your payment plan starts, your failure to pay penalty drops by half.

You may be tempted to use other financing options, such as your home equity line of credit, family loan, or even a credit card. The last option, in particular, is especially risky. According to Sharvin, online services charge convenience fees of up to 5% of each payment if you’re paying via credit card.  Home equity lines of credit may be cheaper than a loan from the IRS, but you’re putting your home in jeopardy for money the IRS is automatically willing to loan.

If you owe more than $10,000 and you don’t have the cash to pay it off, even with a payment plan, talk to an attorney or CPA about settling your IRS debt, Sharvin says.

A Penny Learned is Two Pennies Saved

Avoid fees next year by using the IRS withholding calculator to adjust your withholdings allowances everytime you have a life event that changes your taxes. Such events include beginning to make payments on your student loans, marriage, divorce, birth of a child or a huge investment loss or gain. And if you’re not sure how to change your withholding allowances, call the IRS at 800-829-1040 and ask questions. The best part of paying taxes is that you’ve got options for free help.

photo: JD Hancock

With tax season heating up, most of us are poring over our financial documents and focusing on getting our records straight. In the world of personal finance, tax prep doesn’t exactly rank as the most interesting activity in anyone’s to-do list. (In fact, we rank it solidly between getting a flu shot and a root canal.)

But if you’re well organized and you keep your records clean, getting your taxes won’t be that much of a chore. A tool like Mint.com can provide a clear and organized perspective of your money that you can use to reconcile against your tax statements. Also, to help you out with some great tips for this time of year, we prepared a list of tax-related articles from around the blogosphere:

If your tax documents are getting you down, think about getting a little help. While you could definitely work on your taxes on your own, you can also enlist the help of a tax preparer to get you through the process more easily and quickly. And if you own a business, it’s all the more important to have a professional help you. If you’ve decided to turn to a pro, heed this advice first: Check Out Your Tax Preparer. Don’t Mess With Taxes gives a comprehensive checklist for how and even why you should check your tax preparer’s background before you decide to hire them.

Getting audited by the IRS is clearly among the top things that make us tremble in our boots. If you’re feeling a little paranoid about the possibility of ending up face to face with the IRS soon, then check out this piece called Chances Of Getting Audited? IRS Audit Rates 2010. This article by My Money Blog will shed light on the facts, give you perspective and hopefully help you set your fears aside.

We also found a few articles focusing on how maximizing tax savings. Some tricks: contributing to a retirement plan, looking into a flexible spending account and identifying deductions for which you qualify. Check out these posts for ideas from Daily Worth, who writes about how to Get A Tax Credit For Saving. You can also get Tax Savings On OTC Medications by Using Flexible Spending Accounts as suggested by The Digerati Life. Take a look at this full list of Tax and Money Saving Tips from PF Stock as well.

What kind of tax deductions are you claiming? Here’s a post by MainStreet that discusses the details of how to handle Deductible Alimony. If you’re paying alimony to your ex, you’ll want to find out how to make your payments qualify as deductions on your return.

Finally, we all know that IRAs are a great way to save for retirement while saving on taxes. But be aware that An IRA Is A Poor Shelter For Real Estate. If you are thinking about owning or investing in real estate, then this article by Kiplinger could give you some food for thought. Be armed with the facts before you make a major decision.

Tax season may cause a lot of headaches and frazzled nerves, but if you start early enough, stay organized, take things one step at a time and breathe from time to time, you’ll soon get yourself through it.

Silicon Valley Blogger (SVB) runs  The Digerati Life and  The Smarter Wallet, where she writes about  general personal finance topics such as investing, budgeting, debt management and small business ideas.

photo: JD Hancock

By now you’ve probably received your W-2s, 1099s and other forms necessary to complete your 2010 tax return.

If you’re super-organized, you may have even already filed your taxes and the question now is, what should you do with all those forms, receipts and other documents you used to prepare your return?

Many people err on the side of caution and keep all tax documentation for years on end, or until their filing cabinets literally overflow.

The truth is, you don’t need to keep tax-related stuff forever – but you shouldn’t get rid of it right after receiving your refund, either.

Throw away past tax returns and the supporting documents too soon, and you may find yourself in the middle of an IRS audit, lacking the evidence to back up all those tax deductions and credits. Approximately 1.4 million of 2009 tax returns were audited, according to the IRS. Though that’s only 1% of all tax returns, the chances of being audited are higher if your household income exceeds $100,000.

More importantly, being organized helps you avoid missing tax deductions or credit opportunities because you forgot about a certain expense or lost the receipt.

“You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year,” says IRS spokesman Clay Sanford. 

Here are seven record-keeping tips that will save you those headaches.

1. Know the general rules on old tax returns

Since tax returns are amendable and auditable for three years, you shouldn’t toss any tax information, including copies of your tax returns, for that length of time at the very least.

However, if income reported on your tax return is off by more than 25% than your actual income for the year, the statute of limitations for the IRS sending you an audit request is six years. Worthless securities claims can be audited within seven years.

2. Use Mint.com

Mint.com is great for keeping tabs on expenses you could use as tax deductions – even seemingly complex issues like keeping track of sales tax you’ve paid on items purchased throughout the year.

Categorize your purchases throughout the year and check off the “tax related” box for each transaction that may be tax-deductible. Come tax time, search for “tax related” items and instantly pull all relevant transactions.

For large purchases, take it a step further by annotating the sales tax portion, since it might be tax deductible. Split each transaction to annotate the exact amount of sales tax paid and categorize that as “sales tax.” Again, you can later search for all “sales tax” transactions.

Your data stays in the system as long as you have a Mint.com account, but you should download your transactions at least once a year onto your computer as a backup.

3. Keep big-purchase documents longer

Keep documentations on big-ticket items as long as the item is in use. For instance, a home will be in use until you sell it, but a retirement account could be utilized over the course of your lifetime. If you were able to qualify for a home energy tax credit, save a proof of purchases on windows, insulation, air conditioners, etc., with the energy rating listed, for at least three years.

4. Investments

Keep and review records of your investment losses from previous years because if you exceed the amount you can deduct as a capital loss from an investment, you can potentially keep deducting that loss in future years until the full amount is deducted. Sanford provides this example:

Bob and Gloria sold securities in 2010. The sales resulted in a capital loss of $7,000. They had no other capital transactions. Their taxable income was $26,000. On their joint 2010 return, they can deduct $3,000. The unused part of the loss, $4,000 ($7,000 − $3,000), can be carried over to 2011.

5. Log business mileage

If you use your car for business, write down the mileage used as you go. It’s tough to remember individual trips at the end of the year, and you’ll need to be able to explain your mileage if you are audited. Keep that diary for at least three years.

6. Charity receipts

When you donate money to charity, save your canceled check or your electronic records. If you keep electronic records, such as within Mint.com, you can add this in the charity/gifts category.

If you donate clothing or other non-cash items, Sanford recommends keeping receipts given to you when dropping off your goods. If the receipt is blank, instantly estimate what you donated and write it on the receipt.

If you went to a charity event, you can deduct the amount you paid minus the worth of what you received. For example, if you went to a charity dinner, price out a similar dinner. Then deduct this amount from the cost of the event. Make a note on Mint.com in the descriptions area of the transaction explaining how you estimated what was deductable and what wasn’t.

7. When in doubt, ask the IRS

The IRS has a help line you can call for free with any record-keeping questions: 1-800-829-1040.

photo: borderfilms (Doug)

Canada and the United States may be right next to each other and share a language, but when it comes to investing and personal finances in general — and the tax implications in particular — there are a lot of disparities between the two countries.

Whether you live in Canada, are considering doing so or are simply curious, here are the top five differences in how Canadians and Americans handle their finances.

You Think Your Taxes Are High?

Because of the health care system and other social programs, it’s generally expected that taxes are higher in Canada than in other countries, but by how much? Based on 2005 data for a household earning the country’s average wage, a single person with no children was paying 31.6% of their income to taxes in Canada, while the same person in the U.S. was paying 29.1%. While that’s rather close, the gap widens quite a bit for a married couple with two children, paying 21.5% in income taxes in Canada but only 11.9% in the United States.

What Happens in Vegas…

While Canadians have higher personal income tax rates, it doesn’t mean we pay that rate on all money we bring in. If Americans win a big prize, from a lottery or gambling, they have to pay taxes on those winnings as a form of income. (Indeed, not all that happens in Vegas stays there.)

In Canada, on the other hand, we don’t get taxed on our winnings. I’m not saying that gambling is a great financial decision, but if I were to win $1 million, I don’t have to give the government any of it!

Home, Sweet Home

In the US, the interest portion of your mortgage payment is tax deductible, but in Canada it isn’t. While you certainly need a home to live in, and most people are not able to buy a house without taking on some debt, it does make a mortgage slightly less of a “good debt” than it is in the United States.

The Canada Revenue Agency does, however, allow a deduction for the interest on an investment loan. This has lead to a concept called the Smith Manoeuvre which, at it’s simplest, converts your mortgage into a deductible investment loan. This is done by using a readvanceable home equity line of credit to invest in dividend paying stocks, then taking the dividends to accelerate the mortgage payments and borrowing the newly available room in you HELOC to invest in more stocks. This cycle can pay down the mortgage faster and get you investing sooner, but does eventually leave you with a large investment loan. Once the mortgage is paid off, you could decide to sell the majority of your investments to pay off the investment loan, but if you’re comfortable with that debt, you could keep things as they are, since the dividends would likely be paying more than the cost of the interest, after tax savings.

Who said home ownership had to be simple?

The Retirement Alphabet Soup

Canada’s Registered Retirement Savings Plan, or RRSP, is similar to the 401k in the United States. Both plans grow tax free, but you are taxed at your marginal tax rate when you make a withdrawal during retirement. While 401ks are employer-sponsored, RRSPs are mainly set up by the individual. (Somewhat like Individual Retirement Accounts, or IRAs, in the U.S.) Because of this, 401ks may make it simpler for someone to get started investing. However, there are more choices available to Canadians and since most will invest with after-tax money (some may have the option to contribute through work), it will create a tax refund at the end of the year.

The 401k and RRSP both have annual contribution limits; the 401k allows $16,500 in 2010 while the RRSP gives you contribution room of 18% of your income with a maximum of $22,000. Another bonus of the RRSP is that the unused contribution room is carried forward each year. Because of this, it may actually make sense to not invest in an RRSP in lower income years and let the contribution room build up to have more available to reduce the tax burden of higher income years.

Another advantage of the RRSP: yhe 401k has a 10% penalty for early withdrawal, while the RRSP does not. (On the flip side, the penalty encourages Americans to keep their money in the 401k for their retirement.) Canadians, on the other hand, can employ some nifty tax strategies, such as contributing during high income/high tax rate years and then withdrawing some of the money at a lower tax rate when leaving work to go back to school or to care for children.

Saving for College

Both Registered Education Savings Plans, or RESPs, in Canada and 529 Plans in the U.S. allow you to save for post-secondary education while sheltering the money from taxes. Both also come with penalties if you don’t use the money for that purpose.

While some states in the U.S. have grants or offer state tax deductions for your 529 contributions, the RESP has the Canadian Education Savings Grant (CESG), which matches 20% of your contribution up to $500 each year. So if you contribute $2,000 a year, the Canadian government will add an additional $400.

Withdrawals from 529 Plans are not taxable if used for qualified education expenses, but RESP withdrawals are taxable for the beneficiary. But this isn’t a problem for most Canadians, since the beneficiary is likely making very little money and will have a low marginal tax rate, maybe even 0%.

Tom Drake is the head writer for Canadian Finance Blog, writing about universal topics such as saving, frugality and earning extra income, as well as Canadian specific topics like RRSPs and TFSAs. Tom’s other site is Money Index, which aggregates all the best sites into one easy to use source for everything finance.

photo: brianjmatis

Look, it’s that time of year again, when the IRS puts out its secular holiday tree festooned with shiny tax deductions.

We’ll look at some of those perennial ornaments, but this year is different: the Bush tax cuts are set to expire on December 31, 2010, and nobody knows yet whether Congress will extend them, let them lapse, or do something in-between. Everyone can agree on one thing, though. “The tax rate right now is probably the lowest you’re going to have,” says Justin Ransome, a partner at Grant Thornton LLP. That goes for both income and capital gains taxes.

If you’re a small business owner, an investor, or a philanthropic sort, this means you might want to do exactly the opposite of what you usually do this time of year. So let’s start our top ten list with the topsy-turvy items.

1. Harvest capital gains

The current long-term capital gains tax rate is 15%. “Currently it’s about the lowest rate in town,” says Charlene Fleming, an accountant with KE & Associates in Seattle. If Congress doesn’t act, that’s going up to 20% in 2011. If you have appreciated assets (like a stock or mutual fund that went up) in a taxable account (not a retirement account or 529 plan), take the opportunity to sell and repurchase those assets. You’ll lock in any gains up to this point at the 15% rate. Granted, that means you’ll pay more capital gains tax now than you may have anticipated. But think long-term: If the tax rate goes up in the future, you win. If it stays the same, all you’re out is a few bucks in transaction fees. (It’s not going down.)

This sounds a little nutty, so I’m going to say it again: sell the investments that have made you money, pay the tax, and—assuming you still like those investments—buy them back. “I’ve recommended this to a couple of people, too, and they look at me like I grew two heads,” says Fleming. Trust both of her heads: it’s a smart move.

2. Accelerate income, delay expenses

Typically, at the end of the year, you want to get in any deductible expenses before December 31 and delay income, to the extent possible, until the following year. Because taxes may go up, however, consider turning this strategy on its head, because deductions get more valuable as your tax rate increases. “Take income this year and delay expenses,” says Fleming. “It just seems like the prudent thing to do. Eventually taxes are going to have to go up.”

Now, back to the old reliables:

3. Take advantage of education tax benefits

The Lifetime Learning Credit is available to most taxpayers and covers a wide variety of education expenses. I took an online finance class this year: it’s deductible. The American Opportunity Credit (formerly the Hope Credit) is specifically for college undergraduate expenses. Furthermore, the credits now cover “course materials,” like books, supplies, and beer. Okay, not beer. Finally, don’t forget to deduct student loan interest.

4. Max out your retirement accounts — and consider a conversion

You can stuff extra money into your 401(k) and take the deduction until December 31. For IRAs, you have until April 15. However, given what I said about tax rates going up, you may want to take the deduction next year.

Now, about that conversion: I’m talking about converting traditional IRA accounts into a Roth IRA. (Why, what did you think?) Normally, when you convert a traditional IRA to a Roth IRA, you’d have to pay income tax on the full converted amount. But this year, the tax hit for Roth IRA conversions can be spread out over two years. And if you remember that today’s tax rates are ridiculously low by historical standards, and possibly the lowest they’ll ever be, any taxes you pay now will likely pale in comparison to the taxes you’ll end up paying in the future.

5. Spend your FSA balances

If you have money in a Flexible Spending Account for health care or day care, use it now or lose it. Also, as of January 1, over-the-counter medication is no longer eligible for FSA reimbursement, so buy it now. Now is also the time to submit your paperwork for next year’s FSA. Oh, and don’t forget that summer camp is often deductible.

6. Take the Home Energy Efficiency Improvement Tax Credit

This credit offers you up to $1,500 back for greening your primary residence. Water heaters, insulation, doors and windows, HVAC—it’s all good. But you only get until December 31, so start demolishing now.

7. Check for underwithholding

I know, I know, most people overwithhold so they can get a juicy refund (a.k.a. an interest-free loan to the government). But underwithholding can sock you with a penalty. This is especially common if you’re self-employed. It’s not too late to fill out a new W-4 or send in an extra 1040-ES payment to reduce or eliminate your penalty.

8. Make a 1099/W-2 checklist

This saves me a lot of tax worries every year. If you’re self-employed and get 1099-MISCs, or have money at a number of banks and brokerages, or worked several jobs this year, you need to collect a pile of paperwork before you can file the 1040. Make a list now and check it off in February as the paperwork arrives. No more of that “oh crap, I thought I was going to get my taxes done today but I’m short a 1099” feeling.

9. Contribute to a 529 Plan

There is no federal income tax deduction for 529 plan contributions, but some states do offer this perk. Here’s the master list. (The catch is, you have to contribute to your home state’s plan — so if you live in California but contribute to New York’s 529 plan, you cannot deduct any of those contributions on your California state tax return — or vise versa. But if you live in New York and contribute to New York’s 529 plan, you can deduct up to $10,000 of contributions a year for married couples, $5,000 if you’re single.) If you’ve moved or haven’t recently checked the list above, see if you could save money by switching plans.

That said, should 529 contributions really be driven by upfront tax benefits? To put it another way, have you checked how much college costs these days?  

10. Die

If you’re lucky to have enough assets to be eligible for the estate tax, remember that right now there is no estate tax.  And if Congress doesn’t do anything about it until the end of the year, on January 1, 2011, estate tax will be back. Will Congress do anything? Maybe. The bottom line is, after the end of 2010, no one knows exactly who it is going to apply to or what the rate will be. Last year, people joked about hanging on a few more days until the tax expired. It turned out not to be a joke. I suspect this won’t be, either.