When you first get out on your own, you likely had a job and lifestyle that involved basic expenses and simple income. Doing your annual taxes was likely a breeze, as you just spent an hour at a tax office or turned to software to click through the few things that applied to your circumstances.
However, as time passed and your life and work get more complex, you probably started realizing that the world of taxes was far more complicated than you ever realized. You’ve come to learn and accept that taxes are something you’ll pay every year the rest of your money-making life. Even if you never really ‘felt’ taxes early on because they were taken out of your check before you got the rest of the money in your hands, you now know that minimizing your IRS obligations means keeping more of your own money.
There’s no reason you can’t minimize your tax obligations thanks to online resource like this article now. You can learn what each year’s tax deductions and credits are, especially if you use the official IRS website. Use everything you learn to reduce your tax obligations a dollar at a time. It can add up fast. If you owe $3,000 in taxes one year but find a $500 credit, then your taxes owed fall to $2,500, putting an extra $500 right back in your wallet or checking account.
It only takes a few hours every year to keep up with tax laws, but it can mean saving you thousands each year, especially as the savings add up each year. These tax-reducing hours might just make you more money than the same number of hours at your job, if not a week or month! Keep reading into the paragraphs that follow so you can learn tips and tricks that can minimize your IRS tax obligations.
First and foremost, according to Deanhineslawyer.com is make sure you are making any retirement account contributions that you possibly can. These make the top of most lists of saving on taxes, and there’s not one but two reasons for this. Aside from Roth individual retirement accounts, nearly all contributions you pay into a retirement account can be deducted off of your taxable income. That lowers your total taxable income, which not only results in lower taxes, but might even drop your income bracket to a lower tax rate. The second benefit here is that such funds will grow tax-free up until the time you retire. Starting this early enough can possibly secure your whole retirement for you.
The next area to look for tax savings is your medical plan. If the deductible is high, than you might be able to make contributions to your own health savings account. Such contributions can be used later on for medical expenses, and they’ll roll over indefinitely if not used yet. They’ll grow tax-free while sitting there.
Depending on your line of work or employment status, there are many possible tax breaks to enjoy. For instance, can you combine a personal vacation with a professional business trip? If so, you can reduce your vacation costs by deducting the specific percentage of your unreimbursed expenses you spend on business from the overall costs of the trip. That might include airfare and even a portion of your hotel bill, which would be proportionate to the time you spend conducting business activities.
Do you have a side business or work for yourself? Don’t fear taking what’s known as the home office deduction. Schedule C for the 1040 form lets you deduct any percentage of your home which you use for business. Is your guest bedroom used only for home office work? Does it take up 10 percent of the living space in your house? You can deduct 10 percent of your mortgage payments and various utilities, including water, power, Internet, and phone.
Self-employed professionals, both part- and full-time, have a bonanza of tax deductions available to them. The potential expenses that can be deducted include any website fees, advertising, shipping, vehicle mileage, and office supplies that are related to travel. Other possibilities include a percentage of home Internet fees used for business, business-related travel, and professional publications or memberships and dues.
Another self-employed tax break is open to those that pay 100 percent of their owed Social Security taxes, which happens at 15.3 percent rate. They can deduct half of the full amount they pay, and they don’t even have to itemize in order to claim that deduction.
Many consumers wind up overlooking unreimbursed vehicle expenses. Commuting costs can’t be deducted, but if your line of work involves traveling to various satellite offices or you drive a personal vehicle for business purposes without being reimbursed by your employer, then mileage costs are something you can deduct.
Tax credits are a goldmine if you find them. You deduct these from any taxes you owe. College years are a good place to start. The American Opportunity Tax Credit is open to every year of college. You get a tax credit for 100 percent of your first $2,000 spent on any qualified college expenses, and then up to 25 percent of the following $2,000, capped out at a maximum of $2,500 for each student. That can be $2,500 of deductions from your total tax obligations, so long as you meet particular income requirements about school courses which can improve your job skills.
Likewise, adults looking to boost their training and education can take advantage of the Lifetime Learning Credit. If you have expenses related to educational or college expenses for improving your individual job skills, then you can access credits worth up to $2,000 per year, being 20 percent of as much as $10,000 spent on qualified post-secondary education.
There are four other common deductions to look for while you’re at it. First, if your family has a low or moderate income, seek out the relief of the Earned Income Tax Credit or EITC. Second, based on your state, deduct either state sales or state income taxes paid, thanks to the state sales tax break. Third, investors should add in reinvested dividends following the sale of financial assets in order to increase their cost basis and cut down on their capital gains taxes. Fourth, everyone should track their charitable donations, be it church collection plate offerings or cash given to a local charity.
Never count on a professional tax preparer or even the best software to know each deduction you might prove eligible for. Being a smart taxpayer means knowing on your own what tax benefits and breaks are available to you. Still, that doesn’t always mean you should do your own taxes. Professionals are usually worth the money they charge, but you should just know what deductions to ask them about. Each deduction you can find boosts your disposable income.
Above all of this, the single biggest thing you can do is file and pay your taxes on time. Being a day, week, or month late won’t usually be enough for your assets to be seized, but fees and penalties can add up fast, growing your overall obligation.