Credits and Deductions – 9 Ways to Keep Their Hands Off Your Money
Helpful tips to lower your taxes and save you money
My friend is a CPA and he is always shocked that so many people don’t know that there are a lot of legal ways to save on your taxes. He’s even more shocked when he realizes that even his fellow tax professionals don’t know about them. That’s great for the IRS. They love getting free money from taxpayers who just don’t know any better. I think that’s why they make the forms so hard to understand!
So read on if you want to save some serious cash and go on vacation instead of paying for some Congressperson’s new bathroom!
Home Loans – Those Points Are Deductible
If you bought a home and have points on your new mortgage, you can deduct them. One point is equal to 1% of the purchase price. So if you do the math, that’s e.g. 1.5 points on a $300,000 mortgage, then you paid $4,500 to the lender. That is a nice chunk of change that you can deduct from your AGI (adjusted gross income).
Student Loans – Tax Deductible Interest
Student Loans… They helped us get through our care-free, dependent -status years before we had to pay taxes. They paid for us to get an education so we could get a good job so we could pay off our student loans. The circle of life. The lender collects interest and that costs you even more. But wait! That interest is tax deductible. Most of the well-known lenders, like Sallie Mae, usually get your Form 1098E (deductible interest letter) out to you with plenty of time to do your taxes.
New Job, New Home - Deduct the Costs
You may be getting transferred, maybe you were laid off and found a new job somewhere else, perhaps you got a better offer or maybe you’re getting a promotion to corporate headquarters in the big city. Whatever the reason, if you had to move more than 50 miles for your new job, you can deduct the costs from your income. You don’t have to itemize the deductions, but you should at least keep track of your major expenses like moving company fees, boxes, trucks and gas. It can get pretty expensive, so it’s worth saving those receipts.
Retirement Savings – Add to Your Rainy Day Fund and Save on Taxes Now
If you have a retirement fund and you make less than $25,000 (single) or $50,000 (married, filing jointly) and you contribute to it, you can claim a 50% tax credit on the first $2,000 you deposited. That lowers your overall tax liability. So you save money now and make money for your future.
Get Smart – Education is Tax Deductible
The times they are a changin’. Even people with great educations are going back to school along with the droves of high school grads looking to start their futures. You can deduct up to $4,000 in tuition and fees from any classes you took to further educate yourself, even if those classes have nothing to do with your current job. If your gross income is under $65,000 (single) or $130,000 (married, filing jointly) per year, you probably qualify. Another nice thing is, you don’t have to itemize each class. If Uncle Sam wants to help you get an education, why not let him foot part of the bill?
Give Some Stuff to Charity – It Feels Good and It’s Tax Deductible
If you have boxes of clothing in your attic, grandma’s ugly table from the 50s in your basement or a broken down car that you swear you’re going to fix one day, why not donate it to charity? Yard sales are a lot of work and it usually ruins your lawn, which you then have to pay for, thus losing your proceeds. If you take it down to your favorite charity, they will give you an itemized receipt and you can deduct that amount from your taxes. If you think your more precious items are worth more than $500, have an appraiser vouch for their value, since the IRS tends to look closely at large charitable donations. It’s better to have proof than have to answer uncomfortable questions for no reason!
You Pay Enough for Health Insurance – Why Pay More?
If you pay health insurance premiums and/or long-term care premiums, you might be able to deduct them. Add up all of your health-related insurance premiums and if they are more than 7.5% of your AGI (adjusted gross income), they are tax deductible.
Children – Someone Has to Watch Them While You Work
If you work and have children then you know how much child care costs. Whether it’s a private babysitter or a day care, you’ll pay a lot to keep your little ones safe. If you spend $6,000 or more on child care costs per year, you can deduct that from your income and lower your tax liability.
It Takes Money to Make Money – Investments and Tax Expenses
If you like to play the stock market, maybe you get financial magazines and newsletters to help you decide what stocks to buy and when to sell. If you’re like me, you pay someone else to either tell you what to invest in, or just do it for you. And when tax season arrives, I call my CPA buddy and he helps me through my e-filing. What I didn’t know is that if those costs add up to more than 2% of my AGI (adjusted gross income), they are deductible!
Summing Up
You work hard for your money, especially in this economic climate. It is almost a little painful to turn over so much of that money to the government. So claim your credits and deductions. That’s what they’re there for! These are perfectly legal and legitimate ways for you to save on your taxes. Uncle Sam may make it hard to find them, but they are out there!