This is Your Money with Stuart Varney.
Hello and welcome to Your Money.
I'm Stuart Varney reporting from New York.
April 15th, the tax deadline isn't that far away.
Now many of you will have already started making out your tax return.
Others though will procrastinate and you'll be hustling right down to the last minute.
This week's edition of Your Money is devoted entirely to your taxes.
We'll take a look at what the government considers your taxable income.
We'll look at tax deductions and tax credits.
And we'll visit the office of a tax expert for some advice.
But first, let's begin by examining just what the government considers your taxable income.
You should by now have received your W-2 form.
That's your statement of basic income received from your employer.
There are other forms of income you must declare as well as wages and salaries.
For example, you must report fees received while on jury duty.
If you swap or barter goods, you must declare the value of products and services you receive.
And if you're in the restaurant business, declare your tips.
The IRS is cracking down.
The 1983 stock market rally may have given you investment income.
Stock dividends above $100 per taxpayer are taxable.
If you sold stock for a profit, you've made a taxable capital gain.
Interest income from bank certificates of deposit and money market mutual funds is subject to tax.
So too are any interest payments you receive on mortgages or other loans you've made.
Income from a side business is taxable.
Even the proceeds from a garage sale should be declared.
Alimony, but not child support payments, must also be reported.
If you won on the horses or at the casinos, declare the gain.
Gambling income is taxable.
Please though remember this.
If you deliberately fail to report any income that's subject to tax,
the IRS can take you to court and may charge you with fraud.
Okay, well now let's spend some time looking at the all-important tax deduction.
It's incumbent upon you to know exactly what you can deduct.
There are many items and all of them can have a significant impact on your tax return.
You may deduct from your taxable income alimony payments, gambling losses,
and contributions to approved charities.
If you adopt a child with special needs, that expense is tax deductible.
So too is any penalty you pay for early withdrawal from a bank's CD.
The cost of managing your money, like payments to an investment advisor, also tax deductible.
There are dozens of miscellaneous deductions that help reduce your tax bill.
Buying a home, however, is probably the source of the most generous deductions.
The interest you pay on loans comes off taxable income, credit card interest,
mortgage payments, the points on a new home loan, all deductible.
Personal property taxes and real estate taxes join the list of deductions associated with home ownership.
There are two areas, though, where the IRS has moved to restrict and limit deductions.
Medical costs are only deductible when they exceed 5% of your adjusted gross income, prohibitively high.
And if you are robbed, you may only deduct losses in excess of 10% of adjusted gross income.
At work, travel, meal and lodging costs are deductible if you must travel for your job and your employer does not meet that expense.
If you have two jobs, you may deduct the cost of travel between locations.
Union dues, membership in professional societies, cleaning and repairing uniforms, tools and equipment needed for your work,
all such expenses are tax deductible.
There are then literally thousands of expenses that for some people, in some circumstances, are tax deductible.
But according to the IRS, the single tax deduction that makes the most impact on the most people is interest on loans, particularly mortgage payments.
Well, that is the tax deduction. Now what about a tax credit?
Well, quite simply, a tax credit is a straightforward dollar-for-dollar cut in your tax bill.
And there are more tax credits available than you might think.
There's a 20 to 30% tax credit on expenses incurred caring for a child or other dependent.
The child must be under 15 and the care must be provided so that both spouses can work.
If you were 65 or older, as of December 31, 1983, you are eligible for a tax credit.
The credit is usually between $100 and $200 for a couple filing jointly.
There's a straight dollar-for-dollar tax credit to offset any taxes you may have paid to a foreign government.
The self-employed get limited tax credits on equipment bought for business.
There's even a credit of up to $50 per taxpayer on contributions to politicians or political action committees.
But perhaps the best-known tax credits apply to energy conservation and the installation of renewable energy sources.
If you insulate your home or install storm windows, you get a credit of 15% of the expense.
The lifetime maximum credit is $300 and this credit expires in 1985.
If you install a renewable energy source like solar or wind power, you get a tax credit of 40% of the expense, up to a maximum of $4,000.
Tax credits then offer a direct cut in your tax bill.
And because of that, many experts believe they're the best tax break of them all.
When your money continues, we'll pay a visit to the office of a leading New York tax advisor and we'll take a look at the Fears IRS audit.
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Stay with us for more news and information on Cable News Network.
In just a few minutes, we'll take a look at what you should know just in case you have to face an IRS audit.
But first, I've asked a leading New York tax expert to take part in this special edition of Your Money. He's George Haggerty with Arthur Young & Company.
And earlier this week, we held a discussion in his office.
Now so far in our program, we've looked at what is taxable income, what are legitimate tax deductions, and what are tax credits.
Now let's look at income which you must report to the IRS, but on which you don't have to pay any tax. Now where do we start there?
Well, perhaps the biggest single item would be municipal bond interest income. This is debt of a state or local government, which the federal government chooses not to tax.
Now you've said the federal government chooses not to tax, but what about state and local governments?
That would be up to each individual state and local government. What typically happens is an obligation of a state or local government won't be taxed by that jurisdiction,
but that jurisdiction will choose to tax all other states' municipal bond income.
So it really depends where you live and...