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I cannot tell you how many people I come across whom do not plan ahead for the tax year. We just past April 15, the day personal taxes are due, and when many options for the last year expire. Nevertheless, it is not too late to take advantage of some tax planning for this year.
Now, I am not an accountant, CPA, or even a tax preparer (except my own business and personal taxes), so what follows is just from my own perspective and may or may not apply to your situation. If you don’t feel like looking through the thousands of pages of tax code yourself, I suggest seeking professional guidance as to how you can save on your taxes.
OK, with the above in mind, let’s get into some possibilities for you. Did you know that one of the best ways to save on taxes is by owning a small business? That’s right, if you don’t already have own, you may very well want to start one, but don’t do it simply to save taxes or the IRS will get you. There is a lot of planning and preparation that goes into starting a business, so it is not something to enter into with little or no thought, as consequences can be very costly. There are plenty of resources to be found on the internet about starting and maintaining a business, though some bad info is out there as well. I have two businesses currently operating with another in limbo. If you want more information, please feel free to contact me.
Now, even if you don’t have a small business, there are many tax advantages to be had. I come across people all the time that don’t realize some of the deductions that they can legitimately take, especially when it comes to their current employment. You would be surprised some of the legal deductions one can take as it applies to being an employee. For instance, if your job requires you to be properly groomed and cannot have a beard (such as being a pilot), you may be able to deduct the costs of haircuts, razors, and other grooming supplies. These types of items are placed on a Schedule A, and are subject to limitations of course, but as they add up, your tax savings may be adding up also.
One of the most obvious deductions is that of mortgage interest, which has its own limitations as well. Most also know of the deductibility of real estate taxes as well. But did you know you can deduct investment interest expenses? Did you know that you may be able to deduct mortgage interest as investment interest in certain circumstances? Did you know you may be able to deduct mortgage interest as interest on a business loan in certain circumstances?
Did you also know that there are some deductions that can be bundled together and carried forward to the next year, allowing you to take advantage of the standard deduction this year and combining several deductions the next that exceed the standard deduction. There are also certain tax deductions, even tax credits, that you can take even when using the standard deduction. Again, seek a professional for your own situation and see what you can take advantage of.
Chances are that you have also heard of Flexible Spending Accounts, Health Savings Accounts, or the like that allow you to take a portion of your income and place it aside tax free for certain qualifying expenses. For Health Savings Accounts, you may even be able to use money from this tax free account to pay for over the counter medications, such as aspirin. If you have been budgeting, or at least have an idea of how much you spend annually on qualifying expenses, why not create one of these accounts (if available to you) and save on your tax bill.
Of course, since I am not writing a book here, I cannot even begin to cover all of the possibilities you have to save money on your tax bill. You need to seek professional guidance (or read the tax code) to find all that apply to your specific situation, but if you do so, the savings generated could go a long way to helping you reduce debt, invest more, and become financially free.
Now many of you reading this will simply find a way to boost your refund. That is poor planning, and believe me when I say I am guilty of getting over ten thousand dollars back on a couple of occasions, which actually pisses me off a bit. You see, if you do proper tax planning, you can achieve those savings on a monthly basis, and receive a slight refund, or even pay some when your taxes are due. Why give Uncle Same an interest free loan on your hard earned money? You may be able to adjust your W-4 as an employee and boost your cash flow today and get your money working for you.
The bottom line is that there is no time like the present to begin your planning for your taxes and taking advantage of every possible deduction or tax credit. Doing so can result in tremendous tax savings, increased cash flow, and even attaining financial freedom much sooner than you expected. Don’t delay and implement your tax strategies today.
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