Good books for learning about tax strategy/planning

Question

I switched this year from taking the standard deduction to itemizing my deductions. I was surprised, but Turbo Tax told me that I'd keep more money by itemizing, and when I looked at the return, it was definitely correct.

This switch has me wondering: now that I am itemizing, what other tax planning and/or tax strategies should I be looking into?

I don't think I make enough money to worry about a CPA or EA yet, but I would like to start reading. So I'm asking for recommendations on the subjects of tax planning and tax strategy. (US individual income taxes, specifically.) Any recommendations?

Answer 1

Keep in mind that chasing after tax savings tends to not be a good way of saving money.

What is a good strategy? Making sure that you take all the deductions you are entitled to.

• Look at the sections of turbo tax related to deductions for clues.
• Are there any sections that you might be able to take advantage of if you can document them?
• One area that trips up a lot of people are the requirements to claim a charitable deduction. They don't get a receipt when they need one, or they make a cash donation when using a check is required for proof.
• Are you using your IRA/401K to your best advantage?
• Are you using your Flexible savings account to pay for medical expenses pre-tax or a similar account for child care?
• Are you saving for college using a 529 or similar account? = If you are selling part of an investment do you know how to determine which shares to sell?

What is a bad strategy:

• Getting a mortgage just to save on your taxes. The tax savings calculations are complex, and don't tend to be as big as most people expect.
• Selling a stock just to get a deduction.
• Move to specific local jurisdiction just to save on taxes.

You asked for a book recommendation. The problem is that I don't know of any books that cover all these topics. Also keep in mind that all books, blogs, articles, and yes answers to questions have a bias. Sometimes the bias can be ignored, other times it can't. Just keep looking for information on this site, and ask good specific questions about these topics.

Answer 2

"J.K. Lasser's Your Income Tax" is, remarkably, a great read. It's a line by line review of the tax forms, and offers commentary and examples for every scenario. Of course, it's updated every year to reflect new rules and numbers. I actually read it from cover to cover the first year I started working.

It's not going to offer convoluted strategies to use, but, you'll understand your tax return well enough to respond to the advice you encounter elsewhere.

To mhoran's point - "Don't let the tax tail wag the investing dog." Taxes are important, but should take a back step to earning and investing. Those who didn't sell at the height of the dotcon bubble "to avoid the big tax bill" only saw in hindsight that paying taxes is part of success not failure.