5 Things You Can Do to Get a Better Tax Deduction
Tuesday, April 7, 2020, 6:00 PM | Leave Comment
No matter if the date is around April 15 or later in certain situations, taxes always need to be paid.
This means compiling your W2s, 1099s, and other income and tax information.
The main goal of payers is not to owe. The even bigger goal is to break even or get some money back.
Here are 5 things you can do to get a better tax deduction.
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Change Your Withholding
No matter if it’s a new or existing job, make sure you adjust your withholding on your W4. The good news, at least for some, is the new W4 form allows you to provide a more accurate listing of the taxes you want to withhold. In other words, it limits someone from deducting 25 exemptions.
The fewer exemptions you take, the more tax taken out of your paycheck. This results in a possible refund. On the other hand, more exemptions means you will break even or possibly owe.
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Donate
This is more than donating cash to a good cause. Which, by the way, needs to be checked to determine if the funds are tax-deductible. For instance, church tithings are can be deducted from taxes. However, money paid for mission trips is not allowed in most situations.
There are two other ways to donate. First, you are able to deduct donations of clothing, toys, and household items, among other things, to charities like ARC and Goodwill. To do this, write a list of everything donated and its quality. Next, ask for a receipt. Both of these will be used when filing taxes.
Another donation is your used vehicle or non-working car. If you are unsure about how to donate a car look to see if there are options available in your area first. For this, you must own the vehicle’s title. In addition, the donation service needs to supply a receipt with the assessed value of the automobile.
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Go To College
This suggestion doesn’t mean you should quit your job and go to school full-time. Rather, it means taking classes at a community or public college. What you pay in tuition and supplies, even if covered by some form of monetary aid, is tax-deductible. In addition, items like the American Opportunity Tax Credit (AOTC) and Lifetime Learning Tax Credit further increase deductions.
Also remember that interest paid for federal student loans is also deductible on your 1040. However, the student loans themselves do not have any deduction value, regardless of a reduction in the principal.
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Purchase A Home
For the time being, there are still tax benefits to owning a home. For instance, you can get a federal tax credit if you are a first-time home-buyer. You also get deductions against the interest paid on mortgages as well as annual property taxes.
What you want to watch out for is selling a home too soon. If you need to do this in under two years, and you sell the home for over $250,000, you will be charged a capital gains tax that can reduce or eliminate your deduction.
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Sign Up for a Flexible Health Spending Account
Though health insurance is not deductible, paying into a Flexible Health Spending Account (FHSA) helps to lower paycheck taxes and increase deductions. Here’s how it works. Contributions toward your FHSA come out of your gross pay. Thus, the actual amount to be taxed is lower. As a result, the total year-to-date gross pay is reduced.
A significant amount needs to be taken out during the year to make this work. A $250 annual contribution for a $100,000 salary won’t make a dent. Conversely, a $2,000 contribution for $50,000 will cause a subsequent deduction.
There’s a lot to look at to get a better set of tax deductions. Though this can be done on your own, it’s best to consult with a tax professional. This person can review your existing deductions and withholding, along with past filings, and tell you what you have done right and wrong. Then, they can plan out the next steps in changing your exemptions and finding places where deductions can be made. By the time he or she is done, you should have a new structure on how you handle your annual tax payments and the savings you may get back.
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