Along with making money, we all try to save money too by ‘shopping around’ for items and saving through buying online and various other ways. Our investments help to make us some extra or at least help us prepare for the future. But in order to boost our finances still further certain ‘tax hacks’ can help.
Not Tax Evasion
We’re not talking about illicit tax dodges here; there’s a big difference between tax evasion (illegal) and tax avoidance (perfectly acceptable but requires some knowledge).
When you work for yourself either as a one-person business or a concern employing staff, then certain things you buy for business use can be offset against your tax liability. For example, buying toner for the printer or accounting paperwork supplies can be offset as an expense against your overall income.
Continuing in this way means what you spend on business-related items is deducted from the gross income your business achieves. The amount left is the money you’re actually taxed on in broad terms.
Being ‘good’ at knowing what expenses can be claimed relative to your business type can make the difference between what you pay in tax every quarter to the IRS (Internal Revenue Service).
Perhaps you’re not sure what expenses can be claimed for your business? If you work from home maybe you’re confused on the issue of how much of your household costs such as heating and lighting can be offset against tax? If so a reputable accountant can help.
Charitable Donations as a Tax Write Off
If you regularly donate items such as clothing and older household goods to charity, these can be deducted against tax so ensure you ask for a tax receipt when you donate. It is one of the best Tax hacks.
It can be a bit laborious; ideally, you’d record what you give by photographing each item to prove what was donated and taking your tax deduction accordingly.
If you make financial donations do keep records so you can deduct these against the tax, too. Ensure the charity is qualified for tax-deductible contributions.
Investments and Savings
Some savings vehicles such as IRA (Individual Retirement Account) and 401K savings can save tax on taxable income. It does by lowering it with contributions being offset and not charging tax on withdrawals (check for the latest rules concerning these investments).
A little financial knowledge and keeping abreast of investment news is worthwhile especially if you wish to be more ‘hands-on’ with your investing.
Health Savings Accounts (HSA)
Medical costs are one of the tax hacks for avoiding paying taxes.
You can put money into an HSA tax-free. Also remove it tax-free if it will be used for medical costs. Once your account reaches a ceiling of $2,000 you can move funds into the investment section of this account.
You won’t pay taxes on these investment gains if the funds are used for medical costs.
Save Tax on Student Loan Interest
If you took out a student loan to finance further study costs, it may be possible to reduce the amount of tax you pay. You can do so by offsetting student loan interest against your tax liability.
It effectively reduces the amount of taxable income you’d be liable for the subject to certain criteria. Married couples can claim jointly if they both had student loans and their combined income was less than $120,000.
Education Tax Credit
There are tax benefits available if you’re in a college of graduate course such as the Lifetime Learning tax credit. These credits are for payments to the particular institution for tuition and cover a certain percentage of the overall costs.
American Opportunity tax credit is also another option for the tax credit.
Ask an Expert
For financial matters when self-employed, a reputable accountant is worth hiring. He will help with expenses and preparing paperwork for the IRS. A sound financial advisor is a definite asset when it comes to investing for the future.