‘Tax’ is one such word that fills us with dread as we’ve got to part ways with hard-earned money and that is, of course, something that we won’t be too happy about. But keeping in mind the laws and rules that bind us, there is no other way but to pay the tax that we owe. While this is something that we cannot escape (because it is illegal), that doesn’t mean that we cannot adopt methods that are both legitimate and will save us a significant amount of money!
Sounds exciting right? If you are looking for ways to save tax and in turn save money, it is really important that you stay abreast of the tax laws and while you are at it, get yourself some brilliant financial advice. The main advantage of being well acquainted with the tax law is that you will be able to avail every tax deduction that you are legally entitled to. This article highlights the tax deductions that you often tend to overlook.
Once you start keeping yourself updated with the existing tax laws, you are bound to apply it to your finances, and to nobody’s surprise, you will find that it has saved you thousands! The IRS website recommends excellent resources to make you understand certain tax credits and deductions. Analyze these credits thoroughly as these benefits are what will help you to reduce your taxes taking into account every single penny. In other words, if you are supposed to pay $1,000 in taxes and receive a tax credit of $150, the tax you owe falls down to $850. That is an additional $150 straight in your pocket.
Spending a few hours every day is all that is needed to keep in line with the developments in the tax law and you can, in turn, save thousands on taxes over the years to come. Half the battle is won by just adopting a tax-reduction attitude in your everyday life and you will be mindful of addressing your finances with the same approach.
Here are some tips that will help you in your quest to reduce tax bills in a legitimate manner and save money!
Secure Retirement Account Contributions
This is regarded as the top tool for tax-reduction as it serves two purposes. Generally, most contributions apart from the Roth individual retirement account permit you to extract your taxable income from the amount paid into the retirement account. This decreases the sum of the taxable income that you are liable to pay.
Another advantage of these accounts is that the funds accumulated grow tax-free until the time of retirement. If you start with it early, this strategy alone can look after your retirement.
Contribute Towards Health Savings Account
In case you have a high-deductible medical plan, you should contribute towards a health savings account. The contributions that are not used for medical expenses can roll over for an indefinite period and develop tax-free, basically resembling the assets held in retirement accounts.
Reduce The Cost of Vacation
You can merge a vacation with a business trip and automatically reduce vacation costs by subtracting the percent of the uncompensated expenses spent on business from the total costs. This could consist of airfare and part of your hotel bill which should be in proportion to the time spent on business activities.
Home Office Deduction
If you are self-employed or own side business, don’t hesitate to avail of the home office deduction. This will let you take out a percent of your home that is used for business. For instance, if your guest bedroom is used solely as a home office and it comprises one-fifth of your apartment’s living space, you can take out one-fifth rent and utility fees as a part of your home office.
Deductions For Self-Employment
Individuals who are self-employed working both full-time and part-time are eligible for scores of tax deductions. A few of those expenses include the percent of home internet charges used for business, shipping, dues, advertising, professional publications, memberships, business-related travel, website fees, office supplies and any expenses incurred to run the business.
Individuals who are self-employed and who pay 100 percent of their Social Security taxes can deduct 50 percent of the total tax paid. You don’t even have to itemize to claim this tax deduction.
Overlooked Vehicle Expenses
Another commonly overlooked tax break is unreimbursed vehicle expenses. Business-related vehicle mileage which is explained here can reduce your tax bill and save money. Of course, you won’t be able to cut down commuting costs, but if you go to satellite offices or drive your own vehicle for business and aren’t compensated for the same, you can very well deduct the mileage costs.
Tax credits are your ticket to save a significant amount of money from taxes. The American Opportunity Tax Credit is offered for all years of college. You receive a tax credit on 100 percent of the first $2,000 spent on qualifying college expenses and 25 percent of the next $2,000 for an upper limit of $2,500 per student. This means that $2,500 is subtracted from the total amount of tax owed, so long that you meet certain income criteria regarding school courses that enhance skills required for a job.
The Lifetime Learning Credit
This credit is excellent for adults attempting to boost their education and training. This credit signifies a worth of at least $2,000 per year that is up to 20 percent of $10,000 used for post-high school education and helps pay for college and educational expenses that give your job skills room to improve. This article highlights some facts that you should know about this credit.
The Earned Income Tax Credit
Credits from this lower the overall tax bill for low and moderate-income working for families. This will help in significantly reducing tax and thus save money.
When calculating the cost basis after selling off a financial asset, be sure to add in all of the reinvested dividends. This will increase the cost basis and decrease your capital gain when you sell a particular investment.
Any charitable deductions made with payroll deduction such as the United Way, cheques, cash and donations of clothing and goods are all deduction you can check out a detailed list of charitable deductions here. These deductions add up and are often ignored. Remember to include the cash you contribute towards the Salvation Army and the $20 you place in the collection plate at church each week.
Tax Break From Student Loan
If you are an adult child who is not declared as a dependent by your parents, there is room for a possible tax bin-store you in-store. If your parents pay back your student loans, the IRS presumes the money was given to the child who then repaid the debt. So, the young adult child can subtract up to $2,500 of student loan interest paid by his or her parents.
Job-hunting costs can very well be deducted from your tax bills. If you are looking for a job in the same field, you can deduct all the connected expenses as miscellaneous expenses. The only requirement is that these must pass the 2 percent threshold. You are entitled to deduct these expenses even if you didn’t find a new job.
Being a Part of Military Reserves
Are you a member of the military reserves such as the National Guard? If you travel more than 100 miles from home and require being away overnight, you can deduct lodging and half of the cost of meals while you are away. Don’t forget to deduct the resulting mileage costs.
You need not completely depend on the tax preparer to know about every single deduction for which you are eligible. Be a smart consumer who knows the way around tax laws and reap the benefits from every claim possible.
Every additional deduction that you claim will add to your disposable income which saves money in return without even breaking the law or any instance of tax evasion! So, make sure to apply these legitimate tips and save tax the right way!