12 Ways to Cut Your Taxes
It is tax season: are you having fun yet? Likely, that answer is a resounding no as you realize that your tax burden is heavier and you are finding it difficult to relieve yourself of that added weight. Fortunately, there are numerous ways that you can ease your tax obligation — we will take a look at 12 of them here.
1. Deductions or itemizing — You have a choice when it comes to paying your taxes: taking the standard deduction or itemizing. Clearly, if you keep excellent records, you can deduct your expenses and save money on your taxes. Sift through your receipts, note what expenses apply and itemize with care.
2. Contribute to a 401(k) plan — Your employer offers a retirement plan, but are you participating? Or, if you are participating, are you contributing the maximum allowable amount? Money placed in your retirement account represents funds that are not taxed until later when you make withdrawals and are in a lower tax bracket.
3. Open an IRA account — Besides your workplace retirement account, you can open up your own IRA account and contribute to it. The same tax savings apply here — you contribute money and those funds remain untaxed for now.
4. Participate in a medical flex plan — If your employer offers a medical reimbursement account, then contribute cash especially if you routinely have higher than normal medical bills. Such “flex plans” are contributed to off the top which means that you can avoid paying income and Social Security taxes.
5. Your job-hunting expenses — If you were unemployed at any point in 2012, your related job-hunting costs can be deducted. This can include the travel you paid for to interview for a job including your hotel stay, food and transportation expenses.
6. A job-related move — Congratulations! You landed a new job in 2012, one that resulted in you relocating. If your move took you more than 50 miles from your home, you can deduct the cost of your move.
7. Declare medically necessary home improvements — If you, your spouse or a dependent child has a medical condition that can be relieved by making certain improvements to the home, such as a wheelchair ramp, that cost can be deducted with your medical expenses. Take note that these costs must exceed the added value that such improvements have on your home.
8. Hitting the road for medical care — You may need to travel far to get medical care, perhaps staying overnight if necessary. The IRS allows you to deduct $50 per person so if you are traveling with an ill spouse, you can deduct $100 per day.
9. Business-related travel — Your employer may have required you to use your car for business purposes. If you are fortunate, you got reimbursed for your trips and related business expenses. If you didn’t get reimbursed or if some of your expenses were not covered such as lodging or food, you can deduct those expenses.
10. Training and educational expenses — Easy to overlook are those costs related to your job, including training or education needed to keep you atop your field. You may have taken a training class, an expense that was not reimbursed by your employer. Also, if you belong to a certain association or organization related to your job, your membership fee can be deducted. Related periodical subscriptions including newspapers and magazines may also be deducted.
11. List your capital losses — Did you take a beating on the stock market last year? Did you sell your assets at a loss? Once you sell a stock and realize a loss, that capital loss can offset your taxable income. Play this loss to your advantage and you can reduce your tax burden accordingly.
12. Just give it away — Perhaps your financial position is such that when you die you will leave behind a sizable estate. That estate will be taxed and if the current mood in Washington, DC is an indicator, your heirs will pay handsomely. Instead, give it away now, as much as $13,000 per recipient tax free. If you are married, your spouse can give up to $13,000 too, for a one-time or annual gift of $26,000.
With changes to tax law occurring yearly, you can bet that some deductions will be closed while others will be broadened or introduced in years to come. If you are not sure that can be deduced, consult with you tax advisor or tax planner for guidance.
See Also — 3 Tips for Reducing Your Taxes