|
|
Lower Taxes
The government has tons of tax loops. Understanding the tax system and your
rights can save you lots of money. While there are millions of tax deduction
possibilities, below are some common ideas to help you with your tax deductions.
For more details check out the IRS
web site.
- Property Taxes
- If you own your home, you are probably paying too much toward property taxes.
Each state has a different process to challenge the property value set by
the state. For myself, I had to fill out and return paperwork indicated I
was challenging my property value. With the paperwork, I also sent a copy
of a current appraisal and sales prices for comparable properties. I then
had to meet with a county appraiser. In our meeting I discovered that my property
taxes were calculated using the same type of house in a more expensive section
of town. Two weeks letter I got a letter stating my property value was dropped
by $20,000 which saves me over $150 a year. Not bad for two hours of work.
- Understand the Tax System
- People tend not to understand the tax system and make purchases or decisions
that they feel will save them on taxes. One such purchase is a home. While
interest payments on a home are deductible, most of the time they do not provide
the deduction that you think they are.
The tax system is based on percentages. A deduction is not the actual amount
that you receive back. It is deducted from your taxable income. So, if you
are in the 25% tax bracket a $1000 deduction will only net you $250. You can
take either a standard deduction or an itemized deduction. Interest paid on
a house is only applied to the itemized deduction. Everyone is allowed a standard
deduction and when itemized deductions are less than the standard deduction,
the standard deduction is taken. Therefore, if your house payment does not
cause you to use itemized deductions, then you are not deducting interest
at all. For 2004, a single person will receive a standard deduction of $4,850.
The standard deduction for married taxpayers is $9,700. Therefore, for interest
to be fully deducted you must already have $4,850 in deductions.
- Invest in a Retirement Fund
- If you have extra money or know you should put more away for retirement,
then do it. Investing in IRAs and 401Ks is tax deferred. This means you pay
the taxes on the money when it is withdrawn not when it is invested. This
allows more money to be placed in the investment up front and provide for
higher gains. Given that inflation causes a dollar today to be worth more
than a dollar tomorrow, this makes for a sound idea. This is especially true
if your company matches money that you put in.
- Deduct Interest Points
- Points actually represent an interest expense; therefore, they are tax-deductible.
Check out Missing
Points for more information on how interest points can be deducted.
- Dividend Stocks
- Buy and hold stocks that pay dividends because they are not as taxed as
other investments, such as bonds. Of course, I wouldn't suggest owning a stock
just because it pays dividends, but when considering stocks, dividends are
a much friendlier option.
- Buy Stocks for the Long Haul
- Long-term capital gains held for more than one year are given a tax break.
- Charitable Contributions
- The government rewards generosity with a tax deduction, plus its a good
thing to do. Understand that it's not just cash contributions that get you
a deduction. Clean out the closet, save the receipts, and get a deduction.
You're not using that stuff anyway; therefore, turn it into cash in the form
of reduced taxes. If you don't know how to value the stuff, check out It's
Deductible for help. You can also donate a car, like that clunker, and
possibly deduct more than you will get for selling it.
- Property Sale
- There is a huge tax break ($500,000 married/$250,000 single) on the gain
of sale for your principal residence. You can use this tax break every two
years. If you are looking to move and have accumulated value in your current
property, don't forget to use this valuable and legal tax dodge.
|
|
