Reducing taxes is a goal many of us aspire to, and by trying to understand our taxes better and become tax law savvy, we can often end up saving ourselves many dollars each year. Read on for the top ten tips for reducing your taxes:
- Retirement account contributions:
These are a great tax reduction tool and have benefits that are twofold: deducting the amount that you’ve paid into a retirement account, from your contributions, is usually permissible by law and can reduce your total taxable income. Not only that, but the funds remain tax free until you retire, and beginning this strategy early, can help contribute towards a more comfortable retirement.
- Combining vacations with business trips:
Reduce the cost of a vacation by combining it with a business trip, and then deducting the percentage of unreimbursed expenses spent on business, from the total costs. Be careful to not stretch the limits of this too far, but provided you are honest about the time spent on business related activities and the time spent enjoying a vacation, this could help lower your taxes.
- Home office deduction:
If you have a small business that operates from home, then you should consider the home office deduction when planning for your taxes. This enables you to take a deduction from the percent of your home that is used to conduct the business from, such as a guest bedroom which is used predominately as an office.
- Deductions for the self-employed:
If you work for yourself, either on a part or full-time basis, you are eligible for a whole host of tax deductions. Some examples of this include business related expenditures on such things as mileage, shipping, advertising, office supplies and website fees. You can even deduct a percentage from your home internet charges if they were used for the business. Think about your business carefully, and be sure to make notes of any expenditures related to it.
- Social security taxes for the self-employed:
If you are self-employed and pay 100% of your social security taxes, you are eligible to deduct 50% of those taxes paid; your return doesn’t even need to be itemised to be able to claim this.
- Vehicle expenses:
A tax deduction that is often overlooked, comes in the form of unreimbursed vehicle expenses. You’re not able to subtract from the commuting costs, but travelling to satellite offices or having your own vehicle for business for which you haven’t been reimbursed, means that you can deduct mileage costs.
- Tax credits:
If you’ve been attending college, then the American Opportunity Tax Credit is available for every year that you’ve been studying. College expenses that qualify for the deduction, can get you tax credits of up to 100% of the first $2,000 spent, and 25% of the next $2,000 up to a maximum of $2,500 per student. You will need to meet certain income requirements before you can apply for this.
- Earned income tax credit:
This credit can lower the final tax amount for working families on a low and moderate income.
- Add in reinvested dividends:
If you’re an investor, when calculating your costs after you’ve sold a financial asset, be sure to add in all the reinvested dividends. When you go on to sell the investment, the cost basis is increased and your capital gain is reduced.
- Charitable deductions:
Checks, cash, donation of goods, clothing and charitable deductions made with payroll deduction are all deductible, and when totted up together, can make a sizeable amount, so try not to forget about them when it comes to planning for your taxes.
Any tax professional worth their salt, will also be able to advise you of the myriad ways in which you can reduce your taxes, so don’t be afraid to hire one if you really want to save yourself some money.