The tax filing is getting ever so close, and now is the time to check and recheck all those receipts and other files that you may have. But while you're doing that, let's talk about tax planning on a year long basis.
How often have you picked up a newspaper and saw a story about how many taxpayers either reduced their taxes by as much as fifty percent or even eliminate their taxes altogether?
Well the truth is, is that with careful tax planning. This can be done and if you finish reading this article, you too can either reduce your taxes or eliminate it completely. Now I know what you are about to say, and I'll say it for you. You have to be rich in order to qualify for any of the deductions and tax breaks. Not true!!!!
If that were to be true, then all the rich folks would never be paying taxes ever and not just a few. In fact, the IRS would be very pleased if you never read this article at all. Why? Because if everyone knew about what I'm about to tell you, then every taxpayer in the United States will be paying less taxes if none at all. So if very little money is given to the government, then they can't be paid their high wages. What's more, they would be forced to live within their means. But that's for another time.
Since the information I am about to provide is quite lengthy, I will break this article into a series in which it will be published on a weekly basis. I will discuss in detail of each available deduction, along with details that the IRS won't tell you. Its then up to you to plan out the strategy to be used all year. If you follow the path that I'm about to show, you too can be on your way to reducing or quite possibly eliminate your taxes in the future. So here goes. Read slowly and take notes, but most of all have fun and good luck.
Itemized Deductions:
Most taxpayers never itemized their taxes. The reason for this is that they don't think that they have enough to itemize. If everyone was to make a return using both itemized and standard deductions, they might be in for a surprise. Especially after reading this article. So let's break down each section of the Schedule A form, and you will discover some surprising secrets that the IRS really hope that you would never know.
Medical Deductions: Now everyone knows that you must have in medical expenses, totaling more than 7.5% of your total AGI. That can be easily achieve, once you know what you are to look for. Here are just a few examples.
- Prescription costs. Anytime a doctor prescribes medication, the cost to you is deductible. It may cost you an extra dollar or two, but try to have your doctor prescribe your cold medicine. The extra cost will help lower your taxes. Also, think about paying your parent's prescriptions as well. Especially if they are on SSI or Disability. Not only will you be reaping the deductions, but you'll also be helping out your parents.
- Office visits. The deductible you must pay, adds up in the long. So plan a yearly physical for you and each of your family members. Now this doesn't limit to the medical doctor's visits, this includes dentist, chiropractor, therapies, Wellness centers and other health related issues.
- Health Insurance Premiums. What ever share you pay for your health insurance, dental, and eyes. The cost to you is 100% deductible as well.
State and local taxes: Now we all know that home property taxes are deductible. But there are other taxes that you pay, that falls into the same deductions.
- State taxes withheld. The state taxes that are withheld from your paychecks are completely tax deductible. In fact, this will be your largest deduction on this form.
- Local taxes. Living in large cities such as New York, you pay city taxes. Again, this tax is completely deductible.
- Vehicle registration. Whenever you renew your registration for your car, truck or other motor vehicle, you can claim this on your form as well.
- Other miscellaneous taxes. When you purchase your new or used vehicle, carefully look at your DMV registration papers. The sales tax is not deductible, but the other taxes are. Such as school tax, wheel tax, road tax, etc.
Charitable Donations: This is probable the most confusing of all deductions, but it really isn't. Here's why.
- Cash donations. The IRS has allowed up to $250 before any documentation must be provided to show proof. The key word here is UP TO $250. So go ahead and claim the $250. The IRS is automatically giving you the deduction, why not use it.
- Property donations. Again the IRS is giving you the deduction of property being donated up to $250, before you have to provide any documentation.
Miscellaneous deductions: This is where a lot of taxpayers give up when ipetemizing their deductions. But here are a few ideas to think about.
- Unreimbursed Employee Expenses. If you are required to wear certain clothes or uniforms where you are employed, then you have a gold mine of deductions here. If these clothes must be purchased at your expense, then they are deductible. Shoes also fall into this category as well. The only hitch here is that you cannot wear them as every day clothes. They must be specifically for your job and nothing else. Another added deduction here, is the cleaning of your work clothes. You can legally deduct $20 per week for laundry expenses. That comes to $1,040 in unreimbursed employee expenses every year.
In my next article, I will show you how you can turn your hobby into a business and reap in the rewards of having the business lower your tax bill before the AGI.
