How to Save on Taxes - $5,000 Money Saving Mama Challenge
Need to know how to save on taxes? Looking for surefire ways to reduce income taxes? Read on for tips on how your family can keep more money in the bank come tax time.
When it comes to tax time, do you just do the bare minimum in an effort to get over with? Do you wait until the last minute and then rush through it? If you do either of these things, you may want to reconsider your filing behaviors.
By rushing through your taxes, you could very well be passing on some sizable tax breaks that would mean more money in your pocket at the end of tax season. Read on to learn how to save on taxes. Also keep in mind that these are tips and that it is highly suggested that you consult with an income tax professional with questions about your specific situation.
Tax Time Savings Tip: Keep Detailed Records
One thing that you can do to reduce income taxes is to keep a detailed record throughout the year of all of your expenditures. Keep and file all of your receipts, even if you are not sure if they will come in handy. It is better to have too much to work with than to have too little.
Tax Time Savings Tip: Home Business Deductions
Did you know that you can actually reduce income taxes by starting a home-based business? That's right. If you are a business owner, you can deduct a lot of the things that you use to run your business. This can include a portion of your utility bills (such as electric), your internet bill, any office supplies that you buy (from a new laptop or printer right on down to pens and paperclips), gas mileage, car payments, any restaurants you may have eaten at with clients, travel/lodging expenses for any company events and more. You may even be able to deduct the expenses related to your home office (but only if that space is used strictly for business, so the kitchen table isn't going to cut it) Just make sure you keep a detailed record of any and all money you spend in starting up and running your business.
One thing to keep in mind when running a home-based business is that it is much better for you to move all (or most) of your inventory by the end of the year to avoid having to include your inventory come tax time. So if you have a ton of inventory at the end of the year, try having an end of the year clearance sale. December is also a great time of year to spend money in your business because anything you spend by December 31st can be counted as a tax deduction. So taking advantage of those after Christmas sales at Office Depot and Best Buy can serve two money-saving purposes. Jackpot!
Another thing to keep in mind is that any money you spent in order to gear up for starting your business may be tax deductible. So, if you spent any money on research or training to prepare for your business's opening (and as long as you start your business before those expenses reach the maximum limit of $10,000) you could reduce income taxes that way.
Now, we're not quite done with this section. Another thing you will want to do if you work from home is know your classification. If
you get paid by a 3rd party, ask your employer how your job is classified. If you are considered an employee of the company, your employer will be responsible for withholding taxes from your paycheck. However, if you are categorized as an independent contractor (as is the case for direct sales businesses), you will be responsible for making those tax payments.
Tax Time Savings Tip: Itemized Deductions vs. Standard Deductions
Each year we are faced with the question of whether or not you will itemize your deductions or use the standard deduction. For some of us, the answer is simple - standard deduction. For others, coming up with the best response may not be as simple. The standard deduction is, as one would imagine, the simpler of the two. However, if you suspect that your tax deductions may exceed the standard deduction, it may make more sense to itemize - especially since your ultimate goal is to reduce income taxes. However, in order to itemize, you will need to have kept very detailed records, and it will require a bit more effort on your part.
So when should you itemize? The better question is what expenses have/will you incur that can be itemized. The most common expense categories for itemized deductions are:
- Mortgage interest
- Charitable contributions
- Property taxes
- State and local income taxes
- Medical expenses exceeding 7.5% of your income
- Miscellaneous expenses exceeding 2% of your income (e.g. business supplies/tools, tax preparation fees, union dues, etc.)
It must be noted that if you plan to reduce income taxes using medical expenses and charitable contributions, you would have to itemize your deductions. However, most Americans do not itemize because, typically the standard deduction is the more viable option.
Tax Time Savings Tip: Make Charitable Donations
Speaking of charitable donations, consider making them throughout the year. Once or twice a year, go through everything in your home that you don't need and do not want to sell. Load it up in your car and take it to your local Goodwill or Salvation Army. They will print out a charitable donation receipt for you. Hold on to it and file it away with the rest of your receipts for tax time. It may come in handy should you decide to itemize.
Tax Time Savings Tip: Recoup Job-hunting Expenses
If your hubby was out of work during the year, did you know that he could possibly deduct his job-hunting expenses to reduce income taxes? If he is looking for a job in the same field he was in, he could deduct expenses such as food, lodging, and transportation.
Tax Time Savings Tip: Job Relocation Expenses
Did you and your family move this year because of your hubby's job? If you moved at least 50 miles from your old home, you could deduct the cost of moving your family and your belongings - even parking and toll costs.
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