It’s Time to Think about Taxes
Lowering your tax liability
Industry analysts are predicting that a tangible change in the economy won’t be seen until mid-2010, but there are still some things you can do to lessen your tax liability this year.
• Contribute more to a 401k. Any amount you can contribute to a 401k subtracts from your tax liabilities. Taxpayers can add up to $ 16,500 if under 50 years of age, and $ 22,000 if over 50 years of age. There are still a few months left to increase contributions and cut down on taxes.
• Think about home ownership. It’s a buyer’s market and with a tax credit of up to $ 8,000 for first-time homebuyers from January 1 through April 30 of 2010, now is the perfect time to buy.
• Pay for a college education. The federal stimulus created tax breaks for college expenses. The American Opportunity Credit replaced the Hope Credit, and lowers tax liabilty for taxpayers to meet certain requirements.
• Buy a car. There was also a tax break for new car purchases in the stimulus plan. Anyone who buys a new car this year can deduct state and local sales taxes and excise taxes paid on a purchase price of up to $ 49,500. Car.com expert Miles Bradman said, “This is the perfect time to get a new car and not just from the purchase price standpoint. In years past, a consumer might have needed a big loan to cover a down payments, but now small unsecured personal loans might just turn the trick.”
• Give to charity. Taxpayers itemizing can write off charitable contributions, within guidelines of course. Martin Berg, the industry analyst of money.com said, “A lot of people forget to count their cash gifting when calculating donations. Always include cash and appreciated stock and noncash donations. They also count out of pocket donations to charity, like a 14 cents per mile in travel costs for doing charitable work.”
• Self-employed tax breaks. For self-employed there taxpayers are many additional ways to decrease taxes. Costs of equipment, such as fax machines, computers, or printers, can often be deducted, along with any home office expenses, like rent, homeowner’s insurance, and utilities.
• Medical expenses. Those who itemize deductions, could see a lower tax bill because of medical bills. A taxpayer qualifies for this deduction if expenses for medical costs exceed 7.5% of your Adjusted Gross Income. Tax experts recommend keeping track of medical bills, and keep them on file until tax season rolls around.
Use the various deductions wisely
In the end, it is possible to decrease tax liability by using any or all of the above tools. Any taxpayer thinking they might be staring down the barrel at a huge tax liability for 2009, is well served to know what the rules concerning deductions are. They can make the difference between getting a refund, breaking even, or worse – having to actually pay those jackals at the IRS.
Before you decide anything about your tax report or tax deductions to claim, consult with a licensed and experienced tax professional.