In today’s day and age every cent counts. According to Learnvest, Americans overpay the government by $945 million every year which amounts to about $400 per household. Getting a better understanding of taxes and with a use of a few tricks, you can potentially save yourself a lot of money. Another place where taxes might be taking a chunk of your income is your job, it’s possible you could be saving money on childcare and transportation costs by having your costs of getting to work or having your children care taken out of your paycheck pre-tax.
By mastering little tax tips we listed below you could plan your monthly and yearly budget more accurately and get a clear picture where your income really goes.
1. Job Search Deduction
If you’re looking for a job in your present occupation, you could deduct some expenses from that, even if you don’t end up actually getting a job. This deduction unfortunately does not apply if you’re looking for work in a new occupation or if you’re looking for you first job. The same restriction applies if there was a considerable break between your last job and the new job search. In addition, if you have a job and you use your home computer to acquire income, there are also deduction for your home computer depreciation. You can read more about this at Investopedia.
2. Free advice from tax experts
The Taxpayer Advocate Service is an organization within the IRS that offers free advice for individuals. In order to be eligible for this assistance, you’d need to present proof that you can longer provide for basic necessities (transportation, housing and similar) because of IRS actions. The same applies to any individual that is a business owner but is unable to meet their expenses such as payroll because of the IRS.
3. Making donations to charities
It’s possible to gain considerable tax deductions by donating to charities. Please note that only some charitable donations are actually deductible and that these deductions must be itemized in order to gain tax benefits. Example: if you pledged an amount during the year, only the amount that you actually contributed during that year is usually counted. You can also use your credit card to finance the donation. However, you should use your credit card for this purpose only if you are sure you will be able to pay off that balance within a brief period, preferably before it obtains interest.
4. Contributing to your retirement accounts
If you want to acquire further deductions to minimize the amount of yearly taxes, there’s always the option of making contributions to your retirement account. Of course, this will add deductions only if you are eligible to receive a deduction for the contribution. If you are not an active participant, and you’re not married to someone who is, then your Traditional IRA contribution is suitable for deduction. If you or your partner are active participants, then your to deduction eligibility will be determined by your tax filing status and your modified adjusted gross income.
5. Giving your house away
In cases where you have inherited a house and you don’t want to spend money on up-keep or perhaps you have no heirs or you have a vacation home that your heirs don’t care about. In these cases it’s financially sensible to give your house away to charity. There are many options you can choose from if you want to consider giving your house away. You live out your life in the said house, give the house away, while retaining a life estate. This way you get an income tax deduction upfront. However, if you want income but don’t want the house, you can think about trading it for a string of lifetime payouts.
6. Taking care of kids (or parents)
Fulfilling your family obligations can accumulate extensive costs. A lot of these expenses are actually deductible. It is possible to deduct dependent care, or any expenses related with taking care of your dependent children and parents. In addition, child support is not deductible but alimony is.