I'm proud to pay taxes in the United States; the only thing is, I could be just as proud for half the money. ~Arthur Godfrey
Well, if you read the previous post, you may have a better understanding about how taxes are calculated by your total income that you have received over the year. Whether that be from a employer, rental income or even self-employment, you have to pay taxes on money that you receive while in the United States. However, there is a silver lining to this cloud.
The government is not some heartless entity that ignores the fact that life happens. Sometimes there are things in life that reduce our ability to pay taxes and the government takes account for that in the form of deductions, adjustments and credits.
Deduction: An amount that may be subtracted from income that is otherwise taxable.
Adjustment to Income: An expense that may be deducted even if the taxpayer does not itemize deductions. Adjustments to income are subtracted from gross income to arrive at adjusted gross income.
Tax Credit: A recognition of partial payment already made towards taxes due. (Similar to a credit to your account with a bill)
Common Deductions
- Mortgage Interest
- If you have a mortgage for your primary residence, you are able to deduct the interest paid on that mortgage for the year 2008 on your taxes.
- http://www.irs.gov/taxtopics/tc505.html
- Charitable Contributions
- If you pay tithes or donate money to a church, those contributions are deemed to be charitable and be deducted from your taxes.
- If you contribute clothes to a Goodwill or Salvation army and received a receipt, you can claim the worth of your donated items up to $500 without an appraisal.
- http://www.irs.gov/taxtopics/tc506.html
- Medical Expenses (greater than 7.5% of your adjusted gross income)
- There is a large list of medical expenses that are tax deductible. Some common ones that may not be known are bandages, blood pressure machines, nursing services, etc.
- Please review the deductible medical expenses link for more information about deductible expenses.
- Student Loan Interest
- The interest from student loans is usually qualified as a tax deduction.
- Tuition
- If no one else claims you as a dependent, you can claim your tuition fees and education related expenses as a deduction on your taxes.
- Stock Losses
- You can either use your stock losses to offset your gains dollar for dollar or you can deduct up to $3000 of stock losses for the year. If you have more than $3000 in stock losses in a single year, you can carry over your excess (up to $3000) to the next year and so on.
- Business Expenses
- Your home, travel and car can be written off when used for your business. In addition to that, most business related expenses can be deducted from your taxes also.
- http://www.irs.gov/taxtopics/tc509.html
- http://www.irs.gov/taxtopics/tc510.html
- http://www.irs.gov/taxtopics/tc511.html
- State Taxes
- Four types of deductible taxes
- State, local and foreign income taxes;
- Real estate taxes;
- Personal property taxes; and
- State and local sales taxes.
- Educational Expenses (work related)
- If you received a new certification to help improve your current job, that is a tax write-off! See quote below:
- "To be deductible, your expenses must be for (1) education that maintains or improves your job performance or (2) serves the purpose of your employer and is required by the employer or by law to keep your salary, status or job, and (3) the education is not part of a program that will qualify you for a new trade or business."
- Work Related Expenses
- Did you buy some snacks for a work event and was unreimbursed? Maybe you had to buy some equipment to help with your job but never received any money from your employer. That's tax deductible!
- Casualty
- If you go through the unfortunately situation of having your property destroyed or stolen, you can write off any part that it costs to replace it (that's not covered by insurance).
- Theft Losses
- If you go through the unfortunately situation of having your property destroyed or stolen, you can write off any part that it costs to replace it (that's not covered by insurance).
- Moving Expenses
- As long as you meet a few criteria, you can deduct your moving expenses from your taxes.
Common Adjustments
- 401(k) or IRA Contributions
- If you received a W-2 from your employer, you may have noticed that there is a difference between the income that you received from your employer and the income that is taxable by the government.
- You can deduct up to 15,500 of your 401(k) contribution for the 2008 year or you can deduct up to 5,000 of your IRA (Individual Retirement Account) contribution for the 2008.
- Health Savings Account
- For more information, read the following Government Publication 969.
Common Tax Credits:
- First Time Homebuyer Credit
- The Housing and Economic Recovery Act of 2008 authorizes a $7,500 tax credit for qualified first-time home buyers purchasing homes on or after April 9, 2008 and before July 1, 2009.
- For more information, go to the First Time Home Buyer Website.
- Child Tax Credit
- With the Child Tax Credit, you may be able to reduce the federal income tax you owe by up to $1,000 for each qualifying child under the age of 17.
- For more information, go to the Claiming the Child Tax Credit Website.
It is easy to see why tax preparers make so much money when preparing taxes, but even if you do not do your own taxes, you should at least read the information listed above. It is good to understand what exactly is going on as well as making sure that you receive every deduction that you are entitled to for your taxes.
In total there are over 350 deductions that you can deduct from your taxes if you quality. If you would like to review the source of all this information, please click on the following link below:
I hope this information leaves you feeling a little bit better prepared for this year in taxes. In addition to that, I hope it empowers you to receive a tax return for some of the money that you have contributed to the government. If you have any questions or comments, please leave them below. Stay Disciplined!
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