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Brush Up on Your Tax Facts to Save More Next Year

• Can you carry capital gains over to offset investment losses?

Sixty-seven percent of those surveyed didn't know. Only 9 percent knew that investors cannot carry over gains. When you sell a capital asset, such as a stock, the difference between what you sell it for and what you paid for it is treated as either a capital gain or a capital loss. You have to report all capital gains. You can only deduct capital losses. If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed is limited to $3,000, or $1,500 if you are married and filing separately. If your net capital loss is more than this limit, you can carry the loss forward to later years.

_____Column Archive_____
Managing Retirement, Automatically (The Washington Post, Apr 17, 2005)
Ways to Make Sure You Can Pay for the Golden Years (The Washington Post, Apr 14, 2005)
Read Michelle's Past Columns

• From which retirement plan, if any, can you take tax-free distributions?

Only 27 percent of taxpayers correctly said that distributions from Roth IRAs are tax-free.

If you didn't know the answers to the questions, don't feel bad. It's understandable. But alas, you must try to inform yourself.

"The more an individual knows, the more one can tax plan," Bergstein said.

So here are some things to keep in mind for 2005:

• IRA contribution limits increase to $4,000, from $3,000 in 2004. If you're 50 or older, there's a $500 catch-up contribution, so you can put away $4,500.

• SIMPLE IRA contribution limits increase to $10,000, from $9,000. Catch-up contributions increase to $2,000, from $1,500.

• 401(k), 403(b) and 457 plan contribution limits increase to $14,000, from $13,000. Catch-up contributions increase to $4,000, from $3,000.

• Unless the tax code is changed again, this is the last year educators can deduct up to $250 of expenses paid for books and classroom supplies.

• The rate for operating your car (including vans, pickups and panel trucks) increases to 40.5 cents a mile, from 37.5 cents, for all business miles driven.

• Did you get a big refund this year? The IRS reports that the average refund was $2,117. If your refund was huge -- or if you had to pay more tax because not enough was withheld from your paycheck -- consider changing your W-4 form.

The amount of money withheld is determined by the number of allowances you claim on your W-4. The W-4 has a worksheet to help you figure out how many personal allowances to take, based on which tax deductions or credits you expect to claim on your return. You can also use the IRS online withholding calculator at www.irs.gov.

Keep in mind that what you don't know can cost you come tax time next year.

Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online at www.npr.org. Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071. Send e-mail to singletarym@washpost.com. Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please also note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.

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