Knowing the tax law will ensure that you take all tax deductions you are entitled to, and it can even save you thousands of dollars. Financial advisors are even helping individuals understand more about beneficial tax deductions through the IRS website where great resources are placed to help individuals understand how much they can save through tax credits and deductions. If for instance you owe $2000 in taxes and receive a tax credit of $300, then the taxes owed will reduce to $1,700. By spending a few minutes, a day to keep yourself abreast of tax laws, you will be able to add up small bits and save yourself thousands of dollars over the next few years. Here are the secrets to legal tax deductions, as revealed by financial advisors;
Your retirement account contributions are top tax reduction tools
The retirement contribution account performs two functions; The contributions you make into this account will help you deduct taxes on the amount paid into your retirement account, from the taxable income. This, in turn, will reduce the total taxes payable on your personal income. You will be surprised at how much the funds will grow tax-free until you retire. If you start to deduct these taxes early, it could be your saving grace for financial stability when you retire.
Make contributions to your health savings account if you have a high deductible medical plan
Another way to save and add up on tax reduction is to have a health savings account where you can contribute from your unused medical expenses. You can easily rollover tax deductions indefinitely, from this contribution over a long period of time. You can read more here about this.
Many people do lament over the rising cost of health insurance but they never dig deep into the numerous tax deduction opportunities that will allow them to save more from such little deductions that add up quickly.
Take the home office deduction if you are self-employed or own a side business
If you have a side business or you are self-employed, you should consider taking the Home office deduction because it will help you deduct a certain percentage of your home that is used for the business. If the guest room, for instance, is used for your home business and it makes up 1/6th of the total living space of your apartment, then you can simply deduct 1/6th of the rent and utility charges from your Home office tax deduction.
There are so many other tax deductions that self-employed individuals can benefit from. The vehicle mileage and charges on website fees, shipping fees, and advertising fees for businesses, are tax deductible. Even the charges you incurred on office supply comes with tax deductibles that you must retrieve to save money.
Save more on tax deductions by combining your vacations with business trips
You can easily reduce the costs on your vacation by deducting that percentage of all unreimbursed expenses that has been spent on your business from your total costs. Some part of your hotel bills and even airfare ticket fees may qualify for this tax deduction.
Mixing pleasure with business is one sure way of getting back some of your paid taxes, and you don’t want to miss out on this opportunity because of huge financial investment you will probably make. Fortunately, there seems to be no cap on the percentage tax deductible you can make by combining vacations with business trips.
If you are a student, make sure you retrieve those tax credits
Tax credits are normally deducted from owned taxes hence they can be the best shot at saving more money from taxes. There are tax deduction opportunities for each year you spend on college, and you can even get up to 100% tax credit for the first $2000 you spent on your college or university expenses. All these benefits are available for you to retrieve when you meet some requirements regarding your college or university courses as well as other expenses on your education.
Get tax deductions on lifetime learning credit
If you are an adult taking some educational programs to boost your skills through training, you can get tax credits worth up to $2000 which is up to 20% on the first $10,000 you spent on your post-secondary school education. You can spend these tax credits on your college or university expenses and even improve your job skills.
If you are currently not considering getting some education as an adult, this could be one of your main motivation. There has been an increase in the number of adults enrolling for further education lately, you can easily accrue some money from deductible taxes from such educational opportunities. Don’t be afraid to take up a new learning challenge.
Save money from charitable contributions made from payroll, cash, and checks
You should be excited to know that taxes from charitable deductions made through your payroll, cash, checks, alongside donations of clothing and other goods, are all tax-deductible. Many people often make the mistake of overlooking these opportunities but the money you save can add up quickly and significantly. Cash donations you contribute to the Salvation Army and the little offering you donated to your church, are also tax deductible.
You wonder why so many multinational companies and individual staffs have so many charitable organizations they donate to? It is probably due to the numerous tax-deductible opportunities in them. It is one of the surest and quickest ways to stack up money through tax deductions.
Job-hunting expenses are tax deductible
If you are searching for a job, you can easily deduct and relate your expenses as miscellaneous expenses. You need to itemize these expenses and if they exceed the 2% threshold, you can deduct the expenses from your taxes and save yourself some money, even if you didn’t get a job.
A lot of job hunters will probably ignore this tax deduction opportunity until they go so broke that they can’t even afford their next job interview. Take some time out to work out your expenses while you hop from one town and city to the other and see how much you can retrieve from hidden taxes you have paid.
You can qualify for tax deductions as an independent adult child
If your parents have not included you as a dependent child, you can actually qualify for some tax deductions. Assuming your parents are paying back some or all of your student loans, the IRS will believe that the money is being given to the child to repay the loan. For this reason, the adult, independent child can deduct a maximum of $2500 from the student loan interest after the loan has been paid by the parent. Many smart students have been retrieving thousands of dollars over the years on payable interests on their student loans, through this option and it is one option you should probably consider too if you owe some money through student loans.
If you are in the military reserves, you qualify for tax deductions on lodging and meals
If you are a member of the military reserves such as the Military Guard, and your traveling from home exceeds 100 miles, where you may even have to stay away overnight, you are entitled to deduct a certain percentage from your lodging fees, as well as half of your meal costs, while you are away. You are also entitled to tax deductions on the costs of your fuel and mileage.
Tax deductions relating to investment
As an investor, whether you are selling off some assets or re-investing in some mutual funds, you should calculate all the dividend you re-invested when working out the total basics. The increase in the cost basis for investments will definitely reduce your capital gain when you are selling such investment. The good news here is that the cost of such investment is tax deductible. You need to find out how much of these costs you are eligible to file for the tax deduction.
Sales tax breaks from the states
The sales tax break from the state provides sales itemizers the opportunity of deducting some state income as well as state sales taxes from the payments they have made already. Unfortunately, this tax deduction is available for those who live in states that do not impose income taxes. Tax credits on earned income will surely lower your overall tax bill, especially when you belong to the low or moderate-income family group.
Conclusion You should not rely on the person or agency preparing your taxes, to understand and know every tax deductions you are entitled to, you need to be smarter and know about all the tax deductions and benefits you should be able to claim. You can do this by taking a few minutes every day to learn about all these component tax deductions. You should also keep in mind that all additional deductions you claim will definitely increase your disposable income and amount of savings you can make, significantly.