Tax day has come and gone and depending on your situation, some taxpayers are singing the blues about their tax bill. Not everyone receives a hefty check from Uncle Sam, in fact some taxpayers will have to write a check to the government. It is never too soon to start thinking about ways to avoid having a huge tax bill, in fact now is the time to get your financial house in order and take steps that will keep more of your hard earned dollars at home next year. Steps that can be taken today include opening a traditional Individual Retirement Account(I.R.A.), increasing your 401K contributions, and saving receipts for any charitable contributions made this year. Taking advantage of tax credits and deductions can help you make smarter monetary decisions in the future. State Farm Insurance has a list of ways to help reduce your tax payments, including:
Maximizing mortgage deductions. If you own a home, you can generally deduct all or some of your home mortgage interest on your federal income tax return, subject to mortgage debt limits and subject to itemized deduction limits tied to income levels.
Itemizing health care expenses. If you're self-employed, you can generally claim 100% of health insurance costs for you, your spouse, and dependents, provided that you itemize the deductions. If you are a salaried employee, you can generally write off outstanding medical expenses (healthcare costs not covered by your employer's health plan) that exceed 10% of your adjusted gross income (A.G.I.).
Setting up a Flexible Spending Account (F.S.A.) or a Health Savings Account (H.S.A.).
Inventorying business deductions. If you own a business, you can take advantage of the depreciation deductions for property and equipment allowed in Section 179 of the Internal Revenue Code. You can deduct depreciable business property, business equipment, and vehicles as an expense within yearly cost limitations.
Deducting educational expenses. If you or a family member is enrolled in college courses, the tuition and books maybe deductible, up to $4,000 per calendar year, depending on your circumstances.
Increasing your 401(k) or IRA contributions. Any pre-tax money you add to your 401(k) or traditional Individual Retirement Account (I.R.A.) may lower your annual taxable income.
Selling losing investments. Net losses to underperforming investments (after penalties) can generally be deducted, up to $3,000.
Deducting alimony. Alimony payments are generally tax-deductible.
Itemizing your donations. Giving to charitable organizations can generally be written off if you itemize your donations. Be sure to keep receipts that include the name of the charity, the date of the contribution, and the amount. Note: You can't take the standard deductions on your federal tax form if you itemize deductions.
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