Tax season is right around the corner. Keep more money in your pocket this year by making some smart tax moves!
Anything you can do to pay less in taxes is a good thing - as long as it's legal ! I've been collecting ideas and good pieces of advice for awhile now in preparation for tax day. Here are some of the best tips I've seen to keep more money in your wallet this year!
Claim Your Home owner's Tax Deduction: 61% of homeowners who were eligible to take the deductions and would have saved on their income taxes took the standard deduction (and paid a higher tax bill) instead.That's right! Those folks said "No thanks" when Uncle Sam tried to give them back some of their own money - on a silver platter!
A Few Minutes Could Save Hundreds
Lots of taxpayers take the easy way and choose to take the standard deduction on their federal income taxes, which the IRS has set at $11,400 this year for married couples filing jointly. That's fine if your individual deductions don't exceed that amount. If you have a mortgage, though, it's worth checking to see if your home owner's tax breaks exceed or at least put you within reach of the standard deduction. If they do, then you can add on tax breaks for other expenses such as charitable donations and local sales or income tax that are only available if you itemize.
Make money on charitable contributions: Internal Revenue Code Section 280(A)(g) -- for those who want to look it up -- says you can rent out your house for up to 14 days in a calendar year and all the income comes to you tax-free. Go beyond the 14 days, and everything becomes taxable.
Now this is what you do: Rent out your house to a qualified charity or church for a meeting once a month. Call a local hotel and get their rates for a conference room to establish a fair rental amount. Say that's $5,000 for the monthly use over the year. Since we have only 12 months, this monthly use will add up to less than 14 days out of the year, so all the rental income is tax-free.
In appreciation for all the good works the charity or church does, you make a deductible contribution of $6,000. You're in the 25% bracket, so that saves you $1,500 in federal taxes.
What's the result? The charity spent $5,000 and got $6,000. It's up $1,000. You contributed $6,000 and got $5,000 in tax-free cash, plus another $1,500 in tax savings. You're up $500.
Take a remodeling credit: For 2009 and 2010, Congress created an amazing tax credit of 30% of the cost of qualified energy efficiency improvements such as water heaters, furnaces, insulation, roofing, exterior windows and doors, and other items, limited to $1,500. Up to $5,000 in qualified improvements could cost as little as $3,500 after tax.
Of course there are plenty more things to consider when trying to pay as little as possible on last year's taxes, but these 3 seemed to be a pretty good place to start. Don't forget to get your 2010 IRA contribution in before it's too late. You don't want to miss out on the tax break of saving for your future!