Time to Think about Taxes Once Again
Lowering your tax liability
Industry analysts are predicting that a tangible change in the economy won’t be seen until mid-2010, but there are still some things you can do to lessen your tax liability this year.
• Increase 401k contributions. Any money you are allowed to pay into a 401k lowers your tax liability. Taxpayers can contribute up to $16,500 if they are under 50 years old and $22,000 if they are over 50 years old. There are still a few months left to increase contributions and cut down on taxes.
• Consider homeownership. It’s a buyer’s market and with a tax credit of up to $8,000 for first-time homebuyers from January 1 through April 30 of 2010, now is the perfect time to buy.
• Pay for college. The federal stimulus plan created tax breaks for college expenses. The American Opportunity Credit, which replaces the Hope Credit, lowers tax liability when taxpayers to meet certain requirements.
• Buy a car. The stimulus plan also included a tax break for new-car purchases. Anyone who buys a new car this year can deduct state and local sales taxes and excise taxes paid on a purchase price of up to $49,500. Car.com expert Miles Bradman said, “This is the perfect time to get a new car and not just from the purchase price standpoint. In former years a consumer may have needed a large loan to cover a down payment, whereas now small unsecured personal loans could very well do the trick.”
• Give to charity. Taxpayers who itemize deductions can sometimes write off charitable contributions. Industry analyst Martin Berg of Money.com stated, “A lot of people forget to count their cash gifting when calculating donations. Always include cash and appreciated stock and noncash donations. They can also count out-of-pocket costs to help a charity like 14¢ per mile in travel costs to do charitable work.”
• Self-employed tax breaks. For self-employed there taxpayers are many additional ways to decrease taxes. The cost of equipment like printers, fax machines and computers can often be deducted from, along with home-office expenses such as percentages of rent, homeowner’s insurance, and utilities.
• Medical expenses. For those who itemize deductions, medical expenses can lower a tax bill substantially. A taxpayer qualifies for this deduction if expenses for medical costs exceed 7.5% of adjusted gross income. Tax experts advise that you should keep track of medical bills and be ready to use them when tax time comes.
Use the various deductions wisely
In the end, it is possible to decrease tax liability by using any or all of the above tools. For any taxpayer who believes that he or she may have a large tax liability for 2009, it’s useful to know what the rules are for taking deductions. They can make the difference between having to come up with a substantial amount of money, breaking even, and even getting a refund.
Before you make any decisions concerning tax reporting or the claiming of tax deductions, be sure to get advice from an experienced tax professional.