Finding Tax Deductions to Save Money
Finding tax deductions that you may have overlooked can help you save money by reducing your taxable income. If you can deduct enough of your personal or business expenses to reduce your taxable income, you'll end up in a lower tax bracket, which means you'll owe less to the federal and state governments. If you're planning itemize your deductions, consider meeting with a tax accountant or investing in tax preparation software so that you can calculate and document your deductions accurately.
Reliable Tax Tips
A professional tax accountant can help you find valuable tax deductions. Look for a Certified Public Accountant (CPA) or other highly qualified professional who is authorized to prepare taxes. If you are working with a credit counseling agency to pay off debt, talk with a trusted credit counselor about deductions that you might have overlooked, like deductions for job hunting expenses. If you've been searching for the same type of work that you've done in the past, you may be able to deduct the costs of mailing resumes and transportation to interviews.
Reliable tax deduction information is available online, but you must check your sources carefully. The Internal Revenue Service, or IRS, is a valuable source of advice about deductions. Unbiased tax experts who publish columns online or in popular magazines are reliable sources of information. Public libraries offer free books and articles on tax deductions. Start your search for tax deductions as early in the year as possible, so that you can have plenty of time to find opportunities for deductions and collect receipts.
Credits and Deductions
If you've been struggling to pay off debts because of a low income, the Making Work Pay tax credit may give you some relief. This credit is available to tax payers whose income falls below a certain threshold. You can reduce your taxable income and earn a credit by opening an Individual Retirement Arrangement, or IRA. By contributing to a retirement savings account, you can claim a credit each year while building an income for the years when you're no longer working and also look into opportunities to lower monthly repayments.
Making donations to charity can help you save money through tax deductions. You can claim a deduction by making a cash donation or by donating clothing, furniture, books, kitchen utensils or other items. If you donate personal items to an organization, make sure you ask for a receipt to document your donation. You cannot claim a deduction by donating your time or labor to a charity, but you can claim a deduction for your mileage driving to and from the organization.
Although borrowing money to advance your education and build your career will increase your debt, you may find some relief in tax deductions. The interest that you pay on student loans and a home mortgage is tax deductible. If you moved in order to accept a new job, you may be eligible to deduct moving and transportation costs. You may also deduct a percentage of the cost of certain energy saving products, such as energy efficient windows or solar equipment.
When you're using tax deductions to save money, keep thorough documentation of the expenses or donations that you deduct. If you keep thorough records all year, you won't lose track of deductions that you might have claimed. Although IRS tax audits aren't common, you'll want to have clear verification of your purchases in the unlikely event that the IRS wants to inspect your records. If you save enough money with tax deductions, you'll have extra funds left over to chip away at high interest debts.
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