Around the time I stopped fighting with my parents and began listening to them, my
dad imparted some brilliant financial advice. He told me to become a scholar of the tax
law. OK, perhaps he didn't use those exact words, but the message was the same:
Know the tax law and take every tax deduction to which you are entitled.The Internal
Revenue Service website offers excellent resources to help you further understand the
following tax deductions and credits. Study the credits well, as those benefits reduce your
taxes dollar by dollar. In other words, if you owe $1,000 in taxes and receive a $150 tax credit,
your taxes owed decrease to $850. That's an extra $150 in your pocket. By spending a few
hours each year keeping abreast of the tax law, you can save thousands on taxes over the
years. In fact, keeping a tax reduction mindset in your everyday life will serve your finances well.
(1.) Retirement account contributions are the top tax reduction tips as they 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.) 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, and 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.) If you work for yourself or have a side business, don't be afraid to take the home office
deduction. 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.) Those 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.) The self-employed individuals who pay 100 percent of their Social Security taxes owed
(15.3 percent) can deduct 50 percent of the taxes paid. You don't even need to itemize to claim
this tax deduction.
(7.) 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.) 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. 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.) 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.) The Earned Income Tax Credit lowers the overall tax bill for low and moderate-income working
(12.) 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.) Investors, when calculating the cost basis after selling a financial asset, 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.) Charitable deductions made with payroll deduction (such as the United Way), checks, cash
and donations of goods and clothing are all deductible. These deductions add up and are often
overlooked. Don't forget to include the cash you give to the Salvation Army, and the $20 you place
in the collection plate at church each week.
(15.) 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.) 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 (they must pass a 2 percent threshold). You can deduct these expenses even if you
didn't find a new job.
(17.) 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.
Do not count on a tax preparer to know every deduction for which you are eligible. Be a smart consumer
and know the tax benefits you can claim. Every additional deduction you claim increases your disposable
Source: US News World Report