Common Tax DeductionsList Of Tax Deductions
Common Tax DeductionsThere are common tax deductions that you can take advantage of to keep more money in your pocket, not the governments'.The list of deductions below will enable you to get the best bang for your buck. You may be pleasantly surprised at how many deductions you'll have at your disposal to help with your money saving arsenal. Tax Deduction For CharityYou can take a tax deduction for charity so long as it's a qualified charity. This includes United Way, a car donation, Purple Heart or what have you.Make sure you keep receipts for money contributions. If you make a non-money charitable contribution, such as clothes to the Salvation Army or Purple Heart for example, you can contribute up to $500 per year without needing a receipt. However, you will need a receipt for non-money contributions exceeding $500 and you'll need to know the fair market value (FMV) of the items you’re donating. When you're trying to figure out the FMV, it's subjective. You'll find that there's really no exact science and the IRS realizes this. They just want you to provide an honest appraisal of charitable items. If for example you're donating an old car, look up its value at Kelly Blue Book, which will help you take into account the mileage, age and condition of the vehicle. If you're looking to donate clothes and you’re not sure what their value is, then you can try and figure out what the clothes would cost if you bought them new and then reduce that number by age. For instance, if the clothing is 1 year old, you can knock down the value by 20% and 10% for each additional year to give you a ballpark value. Child CareWhen talking about common tax deductions and child care, you're actually receiving a tax credit, not a deduction which is to your benefit.A deduction shaves money off your taxable income, so the value depends on your tax bracket. If you're in the 25% bracket, a $2,000 deduction lowers your tax bill by $500. But a $2,000 credit lowers the bill by the full $2,000 regardless of your tax bracket. Bottom line, you are entitled to receive a child tax credit for the money you paid for your child’s care while you were working. To qualify for this credit you must:
If you have one dependent that you paid child care expenses for, then you must have paid out at least $3,000 in child care expenses to qualify for the child tax credit. If you have more than one dependent, then you must have paid out $6,000 or more in child care expenses to qualify for the child tax credit. The actual child credit you'll receive is dependent on how much your adjusted gross income (AGI) is. The lower your AGI, the higher will be the dependent tax credit you'll receive. For example, if your AGI is $15,000 or less, you'll receive a child tax credit of $2,100 for two or more dependents and $1,050 for one dependent. On the other end of the spectrum, if your AGI is $43,001 or more, your credit would be $600 and $1,200 for one and more than one dependent respectively. You can see IRS publication 503 for the amount of child credit you'll be entitled to based on your AGI. 401K Taxes401K's certainly deserve a worthy mention when talking about common tax deductions. Without a doubt, an employer based 401K retirement plan can be an excellent tax deduction vehicle.I encourage you to take full advantage of your employer’s 401K plan, especially if they match employee contributions. In fact, the more your employer contributes, the better the plan. In addition to employer matching, you’ll also find that the best 401K plans offer mutual fund investment options. Think of it this way, you’re diversifying your investments more with mutual funds, and your also getting a much better return on your investment if your employer contributes their money to your 401K. As far as taxes go, the contributions you make to your 401K are tax free AND (you’ll love this part) the money you contribute grows or compounds tax free. That’s a very powerful tax savings and investment vehicle that you’ll want to jump all over.. Don’t forget, your 401K contributions are deducted from your gross salary, making your adjusted gross income less, meaning fewer taxes are pulled out of your paycheck.. ROTH IRA Common Tax DeductionsWhen talking about common tax deductions, the ROTH IRA certainly deserves a mention.Contributions to a deductible traditional IRA and to a 401K reduce your taxable income in the year the contribution is made, and that cuts your income tax bill. These accounts are considered "tax-deferred" because you won't pay taxes on interest, dividends, or capital gains in the account during your working career. But when the money is withdrawn come retirement, it counts as ordinary income and "will" be taxed. ROTH contributions, on the other hand, do not reduce taxable income, so there's no deduction. However, the Roth offers a FANTASTIC tax benefit. It’s tax free; meaning no taxes are paid on your contributions and you’ll pay no money on any interest, dividends, or gains when you pull from your ROTH at retirement. This is huge! You can ask yourself, do you want the heavier tax burden now, while you're still working, or when you've stopped working and are living on a fixed income? I like having at least some of my retirement money in a ROTH. Don’t forget, the more taxable income you have come retirement, the more likely your Social Security benefits will also be taxed. This is not the case with the ROTH. Your income from the Roth does not factor into whether you'll pay taxes on a portion of your retirement benefit check like you would with a 401K and traditional IRA. Another ROTH tax benefit, according to IRS rules, you MUST begin taking money out of your 401K or traditional IRA at age 70 ½. With your ROTH, you will not have to begin pulling money out at age 70 ½. Bottom line, the best way to invest for retirement to get the best tax deductions is by doing so in the following order:
Other Common Tax Deductions
And don't forget this important one, the home office deduction. Summary - Common Tax DeductionsI'm happy to have shared these tips on common tax deductions with you. You're entitled to these deductions; so use them to keep more money with its rightful owner, you!Take Care!!
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