No matter how you prepare your taxes, using pencil and paper, using a software package or hiring a professional preparer, it is to your advantage to take every available deduction on your income taxes and every valid credit, so that you are minimizing taxes paid.
An Internal Revenue Service report concludes that the largest amount of claims originate from personal exemptions, and this added up to $842 billion in 2005. As a matter of fact, a lot of taxpayers, take their exemptions – however a lot of other tax advantages might be disregarded.
Take Credit Where Credit is Due
A basic rule to follow with tax credits is that they are worth more when you compare them to tax deductions. This is because credits lower you payment more per dollar. Besides education credits you can deduct child tax exemption credits. You could save $1000 for each child under 17, if you are eligible.
Parents might also be eligible to take tax deductions for child care and dependent costs, as well as summer day-camp and day care costs (but not for a overnight camp). This advantage could save a maximum of $2,100 for you on your taxes.
If overseas mutual funds are part of your investment portfolio, there’s a possibility you’ve paid taxes to the country the fund is in. Check your financial statements and ask your adviser or tax professional if you qualify for a “Foreign Taxes Paid” deduction when you file your taxes.
Taxpayers who have a lower income should know about the saver’s credit. The maximum amount is $1,000, and it is intended to encourage lower income taxpayers to save money for retirement.
Businesses come with some great advantages. The section 179 expense election offers proprietors of companies that have purchased such supplies as furnishings, trucks, and even computers (with some restrictions pertaining to qualifying for this) as much as a maximum figure of $125,000.00.
It could be that the most valuable deduction that will come your way, will not even require you to spend money to get it. Suppose a proprietor decides to get two new cars, if he relies on financing, you can use credit to purchase one car, thus acquiring $60,000 deduction and at the same time save this money.
Still you can reduce your partner’s taxable income through deduction. Suppose you are an contractor and your partner works and she gets a W-2. Then as per section 179 you can offset your losses from her W-2 amount. Much as it might initially be zero.
Those who are starting up businesses should apply the Section 179 deduction in order to decrease the spouse’s income to virtually zero; this is quite a valuable plan for such folks, and it means a great deal as starting any kind of business is quite capital intensive.