Are You Using These Tricks For Lowering Your Tax Bill?
Well, maybe they’re not tricks. But putting enough ideas like these on your side and you might start to feel like a trickster come tax time. Did you know that the date of your wedding matters for your tax bill? Or just how valuable your Health Savings Account could be?
Go for a health tax break.
Be aggressive if your employer offers a medical reimbursement account — sometimes called a flex plan. These plans let you divert part of your salary to an account which you can then tap to pay medical bills. The advantage? You avoid both income and Social Security tax on the money, and that can save you 20% to 35% or more compared with spending after-tax money. The maximum you can contribute to a health care flex plan is $2,500.
Pay child-care bills with pre-tax dollars.
After taxes, it can easily take $7,500 or more of salary to pay $5,000 worth of child care expenses. But, if you use a child-care reimbursement account at work to pay those bills, you get to use pre-tax dollars. That can save you one-third or more of the cost, since you avoid both income and Social Security taxes. If your boss offers such a plan, take advantage of it.
Ask your boss to pay for you to improve yourself.
Companies can offer employees up to $5,250 of educational assistance tax-free each year. That means the boss pays the bills but the amount doesn’t show up as part of your salary on your W-2. The courses don’t even have to be job-related, and even graduate-level courses qualify.
Tally job-hunting expenses.
If you count yourself among the millions of Americans who are unemployed, make sure you keep track of your job-hunting costs. As long as you’re looking for a new position in the same line of work (your first job doesn’t qualify), you can deduct job-hunting costs including travel expenses such as the cost of food, lodging and transportation, if your search takes you away from home overnight. Such costs are miscellaneous expenses, deductible to the extent all such costs exceed 2% of your adjusted gross income.
Keep track of the cost of moving to a new job.
If the new job is at least 50 miles farther from your old home than your old job was, you can deduct the cost of the move . . . even if you don’t itemize expenses. If it’s your first job, the mileage test is met if the new job is at least 50 miles away from your old home. You can deduct the cost of moving yourself and your belongings. If you drive your own car, you can deduct 23.5 cents per mile for a 2014 move, plus parking and tolls.
A tax credit is available for homeowners who install alternative energy equipment. It equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, and wind turbines, including labor costs. There is no cap on this tax credit, which is available through 2016.
Time your wedding.
If you’re planning a wedding near year-end, put the romance aside for a moment to consider the tax consequences. The tax law still includes a “marriage penalty” that forces some pairs to pay more combined tax as a married couple than as singles. For others, tying the knot saves on taxes. Consider whether Uncle Sam would prefer a December or January ceremony. And, whether you have one job between you or two or more, revise withholding at work to reflect the tax bill you’ll owe as a couple.
– via www.kiplinger.com
What You Spend Matters
Lowering your tax bill is about what you make, and also what you spend. But it’s not just how much money, but where you spend it that matters.
Flex Your Spending Power
Sometimes, to save money on the tax bill, you must spend money elsewhere. Many employers offer a benefit that allows people to chip away at the tax bill using money they had planned on spending anyway, such as dependent care or medical expenses.
Flexible spending plans are pre-tax plans that allow certain expenses — such as dependent care, medical expenses and health insurance — to be paid with tax-exempt dollars. Employers deduct pre-determined, tax-free amounts from paychecks and place them in an administered account that releases the funds when the expenses are incurred. And, because contributing to a flexible spending account also reduces your gross income, your taxable income becomes even lower — keeping more in your wallet.
Thompson raises two warning flags. The first is the “use it or lose it” stipulation, which comes into play if the pre-tax funds aren’t used in accordance with the rules. Let’s say that Mom deducts pre-tax money to pay the day-care center, but then Grandma starts to take care of the baby. Unless Grandma operates a licensed, approved day-care center and charges for the care of the baby, any pre-tax money Mom set aside for day-care is lost. Second, you can’t use child care as an itemized expense. Because the tax benefit was given in the flex-spending plan, that money cannot be used as a deduction unless the amount spent exceeds what was deducted pre-tax. Other child-care expenses, such as some summer camps, would not be impacted.
– via turbotax.intuit.com
Are you using any of these ideas to get a tax break? How are you working on lowering your tax bill?