10 Tricks to Lowering your Taxes
No doubt, everybody wants to keep more money in his/her pocket. Especially when tax savings are concerned.
Lower your Taxes with these 10 tips.
There are numerous options to defer income or accelerate deductions, you will definitely find the ones you are eligible to in our list:
- You can lower your adjusted gross income through tax deductions for education expenses up to $4,000 per year. For example, costs of college tuition and other mandatory school fees qualify for the tuition deduction. The deduction is limited by income ranges: $4,000 max for income up to $65,000 ($130,000 for joint filers), $2,000 max for income between $65,000 - $80,000 ($160,000 for joint filers), and no deduction is possible for income over $80,000 ($160,000 for joint filers).
- Interest paid on a student loan can be deducted from tax on loans issued for yourself, for your spouse in case you file jointly, for your children, grandchildren, great-grandchildren or other qualifying dependents. The maximum amount of deduction is $2,500, if your income is under $60,000 (or $120,000 for joint filers). If your income is over $60,000, but under $75,000 ($120,000 to $150,000 for joint filers), the deduction will be prorated.
- Certain medical expenses and money used in health care spending accounts can also be deducted from your gross income. You can deduct the portion of medical expenses that exceed 7.5 percent of your adjusted gross income. The threshold will increase to 10% starting with the year 2013. Employees may set up a medical flexible spending account as an employee benefit through their employer. This means pre-tax money using payroll deductions.
- Moving expenses are deductible if someone moved due to a change in job or change in business location, provided the job is located at least 50 miles farther from the individual's old home than the distance between his/her old home and old job. Qualifying expenses are, for example, costs for packing and shipping personal property and costs for travel and lodging.
- Interest paid on your home loan may reduce your tax liability if you do not take the standard deductions like the above ones. This is a so-called itemized deduction. Mortgage interest includes interest you paid on loans to buy home. The amount to be taken into consideration does not include the amount paid towards your principal.
- Items that are often deducted include donations to qualified nonprofit organizations both in cash and non cash contributions. These belong to the itemized deductions, too. You are required to keep records of your charitable contributions indicating the name of the organization, the date and the amount of contribution. In case of a non cash donation, you have to document the fair market value of the goods donated, and keep a written acknowledgment from the charity.
- You can claim a home office deduction if you work from home. The costs deducted must all be legitimate business expenses. Only a certain percentage of items like utilities can be deducted. People who have no fixed location for their businesses are also eligible for this deduction if they use their homes for administrative or management activities, even if they don’t meet clients there.
Losses from theft, casualty and disaster are deductible if the amount is greater than 10% of the adjusted gross income. Deductible casualty losses include, for example, car accidents, earthquakes, fires, floods, storms, while non-deductible losses include accidental breaking, pet-related accidents, progressive deterioration, etc.
A tax credit directly reduces the taxes you pay. An example for that is the Energy Efficient tax credit. You can claim it if you installed certain energy efficient products for your home like exterior doors and windows, insulation, central air conditioning and heating, geothermal heat pumps, hot water boilers. The tax credit is 30% of the purchase price, up to a maximum tax credit of $1,500.
Contributions to retirement savings may qualify for a federal tax credit. The tax credit is 10%, 20%, or 50% of your contributions to your 401(k), traditional IRA, Roth IRA, SEP-IRA, SIMPLE IRA, Federal Thrift Savings Plan, or 503(b) plans, depending on your adjusted gross income. The maximum amount is $1,000 for unmarried filers and $2,000 for married filers.