Top 9 Cash-saving Tax Tips
Best tips that will help you save money when you file your next tax return
I do not know of anyone who does not like saving money at tax time so here are nine of the top cash-saving tax tips to consider:
Charitable Donations are your Friends
A great way to get tax benefits and buoy your reputations is through charitable donations. Just keep in mind that they have to be itemized to be deducted and that people taking a standard deduction won’t be getting that benefit. Keep in mind that you will need bank records and a receipt for your contributions and that you can’t deduct donated clothes unless they are in good working condition. Also, remember that your donation only pertains to what you have given for the year. You can use a credit card if you don’t have cash on hand. However you should only use your card if you are positive you can pay the balance quickly.
Take Advantage of the Non-Business Energy Property Credit
This is a credit for 10% of the total cost of particular purchases that are qualified energy-saving appliances that you have brought into your home during the year. Another component of the credit is the real cost of a particular property like heating and air conditioning systems or water heaters and each has its own dollar limit. The credit’s maximum so-called lifetime limit is $500, and when it comes to windows the most you can use is $200 of this limit and of course to qualify the home has to be located in the U.S. Make sure you have the right documentation such as a certification from the manufacturer for your records.
Debt Cancellation Tax Tips
When you are fortunate enough to have your debt cancelled you should expect to pay taxes on that windfall like income but there is an exclusion that might apply for mortgage debt cancelation during 2015. This can get murky if you are a taxpayer and a principal residence owner who has taken advantage of a reduction in your principal mortgage. Still there are plenty of ways to save money when it comes to this type of debt cancellation. If the cancelled debt is on your main domicile you could take out the cancelled from your income. To do this the loan has to have been used to build, improve, or purchase your home and the mortgage has to be secured. Under certain circumstances, you can also save money on your taxes via refinanced mortgage or Loan Modification.
How Early Retirement Distributions can cost you
When you dip into your retirement fund or IRA you will likely have additional income taxes to be levied against you. Consequently you need to know the most cost effective way to do so. The definition of an early withdrawal from your retirement fund is making a withdrawal before reaching the age of 59 ½. If you took out funds last year you have to report it and pay taxes on the withdrawal and if early then you will need to pay an extra 10%. Of course the additional 10% does not go towards non-taxable withdrawals and these include the amount you pay to take part in the plan, a part of that cost is the money that was already taxed and deposited into the plan.
Offsetting Gains and Losses
For those of you in the stock market, who want to deduct depreciated stocks losses, you have to ensure that said stocks have been properly liquidated by the end of the year when the trades settle. You see these kinds of losses could potentially become gains on other stocks since from depreciated stocks can become deductible losses that can be sold in order to lower the taxes you would owe on those specific gains. This is what many tax efforts advise that you sell winning stocks that have long-term capital gains along with losing stocks that have short-term capital gain in order to optimize the tax benefits.
Consider Funding your Retirement Plan
In order to get more reductions and further reduce your tax payment, you might want to look into contributing to any of your retirement accounts. This can apply to IRA if you happen to be able to receive a deduction for the contribution. If you are not an active participant or married to one, your “traditional” IRA functions as a deductible expense. However if your wife or husband is participating then your ability to deduct is contingent on your MAGI or modified adjusted gross income as well as your filing status.
Think about getting a Flexible Spending Account
If you have a job where certain benefits are open to you, it’s a good idea for you to consider enrolling into an FSA or a flexible spending account. With this type of program, money is removed from your pay check before taxes, reducing your taxable income, given back to you when you provide the necessary forms. This can result in a tidy amount of income going untaxed and into your pocket. FSAs come in two varieties, healthcare and dependent care. Dependent care is used for the care of your dependents and healthcare is used for health care and you can contribute up to $5,000, but it is a use it or lose it proposition so only contribute what you can use.
Be careful claiming the home office tax deduction
A home office set up has its own rules when it comes to making deduction claims, but they have been significantly loosened. Right now if your business is not in a permanent location you can claim a home office deduction as long as space is used for management or administrative purposes and you don’t even have to meet with clients in the place. Taxpayers often avoid the home office tax deduction because they are convinced that it will just make the IRS audit them. But if you really work at home it should be no bother at all. With this deduction, you can write off expenses that deal with part of your home where you conduct business and this includes insurance, rent, utilities, and housekeeping.
Consider the lesser known deductions
Here are some deductions you might not have heard about. First, there are the deductions you can claim while you are hunting for a job in your chosen field. But, you can’t deduct expenses incurred while finding a job in another field, if it’s your first time in the job market, or if you have taken a lengthy break from your last job and your job hunt. You can deduct what’s called the depreciation of the PC at home if you use it to earn a living. Also, the depreciation of your phone and PC are deductible if they are required by your employer for you to work. Keep in mind that a lot of these tips do carry exclusions, limitations and other restrictions so it is best that you seek tax counsel to make sure you qualify.