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17 Secrets To Increase Your Tax Return
Having extra cash is always a welcoming thought and as April 14th approaches, ways to increase your tax return would be useful information. These tax return secrets from DailyFinance will make the next few weeks more bearable knowing that you are getting the most money possible out of your tax return.
1. Count on retirement account deductions
Retirement account contributions serve two purposes. Most contributions (except the Roth Individual Retirement Account) allow you to deduct from your taxable income the amount paid into the retirement account. This reduces your total taxable income. Further these funds grow tax free until retirement. If you start early, this strategy alone can secure your retirement.
2. Use an H.S.A.
Contribute to a health savings account if you have a high-deductible medical plan. The contributions unused for medical expenses can roll over indefinitely and grow tax-free (similar to the assets in a retirement account).
3. Combine a vacation with a business trip
Reduce vacation costs by deducting the percent of the unreimbursed expenses spent on business from the total costs. This could include airfare and part of hotel bill (proportionate to time spent on business activities).
4. Work the home office deduction
Don’t be afraid to take the home office deduction, if you work for yourself or have a side business. This deduction allows you to deduct the percent of your home which is used for your business (on Schedule C, 1040). If the guest bedroom is used exclusively for a home office, and constitutes one-fifth of your apartment’s living space, you can deduct one-fifth of rent and utility fees for your home office.
5. Don’t miss the joys of being self-employed
Self-employed individuals (either full-time or part-time) are eligible for scores of tax deductions. A few of those expenses include business related vehicle mileage, shipping, advertising, website fees, percent of home internet charges used for business, professional publications, dues, memberships, business-related travel, office supplies and any expenses incurred in order to run your business.
6. There’s a special deduction for Social Security
Self-employed individuals who pay 100 percent of their Social Security taxes owed (at a rate of 15.3 percent) can deduct 50 percent of the taxes paid. You don’t even need to itemize to claim this tax deduction.
7. Appreciate the benefits of future depreciation – now
There is one more big-time deduction for those who are self-employed or have a side business. In 2013, you’re eligible for “bonus depreciation” of 50 percent. This means that you can write off 50 percent of the cost of new equipment purchased instead of writing it off over many years.
8. Your car, their miles
Unreimbursed vehicle expenses are another frequently overlooked tax break. You can’t deduct commuting costs, but if you travel to satellite offices or drive your own vehicle for business and aren’t reimbursed, you can deduct mileage costs.
9. Tax credits are gold
Tax credits are great, because they are deducted from the tax owed. American Opportunity Tax Credit is available for all for years of college. You receive a tax credit on 100 percent of the first $2,000 spent on qualifying college expenses and 25 percent of the next $2,000 for a maximum of $2,500 per student. That’s $2,500 deducted from the amount of tax owed (as long as you meet certain income regarding school courses that improve job skills).
10. Never stop learning
The Lifetime Learning Credit is great for adults boosting their education and training. This credit is worth a maximum of $2,000 per year (up to 20 percent of up to $10,000 spent on post-high school education) and helps pay for college and educational expenses that improve your job skills.
11. Remember the Earned Income Tax Credit
The Earned Income Tax Credit lowers the overall tax bill for low and moderate-income working families.
12. Get a discount on sales tax
The state sales tax break gives itemizers the chance to either deduct state income or state sales taxes paid. This benefit is great if you live in a state without income taxes.
13. Add in reinvested dividends
Investors, when calculating the cost basis after selling a financial asset, should make sure to add in all of the reinvested dividends. That increases the cost basis and reduces your capital gain when you sell the investment.
14. Do well by doing good
Charitable deductions are often overlooked. Include payroll deductions (such as the United Way), checks, cash and donations of goods and clothing.
15. A student loan interest loophole
If you are an adult child who is not claimed as a dependent by your parents, here is a possible tax break for you. If your parents pay back your student loans, the IRS assumes the money was given to the child, who then repaid the debt. Thus the young adult child can deduct up to $2,500 of student loan interest paid by their parents.
16. Uncle Sam encourages job hunters
I remember tallying job hunting costs to deduct from my meager tax bill in the past. If you’re looking for a job in the same field, you can deduct all related expenses as miscellaneous expenses if you itemize (and they must pass a 2 percent threshold). You can deduct these expenses even if you didn’t find a new job.
17. Get a credit for getting to your unit
Are you in the military reserves, such as the National Guard? If you travel more than 100 miles from home and need to be away overnight, then you can deduct lodging and one half the cost of meals while you are away. Of course, you can also deduct mileage costs as well.