Nontaxable Interest
Interest earned on bonds issued by a state, territory, municipality or any political subdivision is free from federal taxes. These are generically called municipal bonds, and their tax benefit increases in value as your marginal tax rate goes higher. (In other words, the bonds are worth more to you as your overall income rises.)
Assume you’re in the 35% bracket, the top rate through the year 2010. A 5% tax-free rate becomes the equivalent of a taxable rate of 7.69%. In the 15% bracket, the taxable equivalent is only 5.88%. If you check out this page at investinginbonds.com, you can compare taxable and tax-free yields. Compare the after-tax rates on alternative investments of equivalent risk.
Car Pulling
Commuting to work? Bring a friend — and his wallet. If you form a carpool to carry passengers to and from work, any dollars received from these passengers aren’t included in your income.
Commuting costs are generally not deductible. But if you establish a carpool and you’re reimbursed in amounts sufficient to cover the cost of your repairs, gas and similar items used in connection with operating your car to and from work, then you’ve converted personal nondeductible expenses into excludable income.
Selling Your Home
Under a tax law enacted in 1997, if your house was your principal residence for two of the last five years, you can exclude as much as $250,000 in gain($500,000 on a joint return) when you sell it.
You don’t have to reinvest the money, and you can claim the exclusion every two years. (If you’ve got $500,000 in gain every two years, I want to meet your real estate agent and go shopping!)
If you need IRS legal representation in Chicago, Visit Horowitz & Weinstein. Or you can visit the National Tax Firm of Kenneth Sheppard.
