How long do you have to save your tax returns
Reducing your tax burden doesn’t have to be complicated with these strategies.
Knowing what you're entitled to write off on your tax return might seem complex and mysterious, but it doesn't have to be. Here are five easy ways to pay fewer taxes :
1. Check for ordinary losses on stock losers.
Last year was a great year for the stock market, but not every investment was a winner. Ordinarily losses on the sale of stock are deductible as capital losses. These losses can offset capital gains (including capital gain distributions from mutual funds) as well as up to $3,000 of ordinary income ($1,500 for married persons filing separately).
But you may be able to obtain even better tax results if the stock was in your own corporation or another closely-held corporation that meets the requirements to be treated as "Section 1244 stock." That means if you invested in your brother-in-law's business that meets the Section 1244 requirements and it failed, causing you to dump the stock for pennies on the dollar or you simply walked away, then you can deduct up to $100,000 of losses as ordinary losses on a joint return ($50,000 for singles). Losses in excess of this dollar limit are treated as capital losses subject to the limits above. (IRS Publication 550 spells out the details of this rule.)
2. Check for worthless securities.
Unfortunately not all investments work out; some corporations—public or closely-held—go belly up, leaving investors with worthless stock and other securities. If you have a security that's become worthless, you can deduct your loss. You're treated as having sold the security on the last day of the year in which it became worthless.
You have seven years from the year in which worthlessness occurred to file a refund claim, so look for securities you owned that became worthless in 2006 or later so you can file a refund claim before April 15, 2014.
Caution: The stock must be completely worthless. The fact that a company declares bankruptcy does not mean its stock is worthless. Remember that Kodak filed for bankruptcy protection in 2012 and all looked hopeless, but
Kodak emerged from bankruptcy and its stock was relisted on the New York Stock Exchange in November 2013.
3. Pay no tax on gain from your home sale.
Did you sell your home in 2013? If you owned and used it as your principal residence for two of the five years preceding the date of sale, then you can exclude from income the gain up to $250,000, or $500,000 on a joint return. If you bought your home a long time ago and had a large gain, you may still use this shelter to avoid paying any tax on the sale by correctly figuring your tax basis and gain realized.
Gain is the difference between the amount realized (the selling price less broker's commissions) and your tax basis. Tax basis is the original cost of the home increased by capital improvements you made to it over the year. Capital improvements include a new roof, an addition, fencing, a new alarm system or even new appliances. IRS Publication 523 gives an overview of this rule.
Caution: If you took a home energy tax credit in past years for adding insulation, storm windows, or solar panels, then you must reduce your basis for these capital improvements by the amount of the credit.
4. Deduct your out-of-pocket costs for charity.
If you do volunteer work for a nonprofit organization and itemize your personal deductions, then you can write off the expenses you incur. For example, if you deliver meals on wheels in your car, you can deduct your costs at the rate of 14 cents per mile (provided you have a record of this driving).
If you buy items on behalf of a charity, then you can deduct these costs as long as you correctly substantiate your costs. Receipts aren't enough if the costs are $250 or more. In this case, you need a written acknowledgment from the charity.
Note: You can never deduct the value of your time and effort expended on behalf of a charity. IRS Publication 526 contains more details about the ins and outs of this approach.
5. Make smart tax elections.Source: money.usnews.com