If you are not prepared when filing your US federal income taxes, you may find you owe a substantial amount of money and that can take a toll on your personal budget. Tax deductions are a way for taxpayers to save money on federal income taxes. The Internal Revenue Service provides publications addressing qualifications for tax deductions. Apart from the IRS, a professional tax consultant can also help you determine all of the tax deductions available to you.
1. Claim All Available Tax Credits
Make sure you are claiming all of the tax credits available to you. Tax credits are available to low-income taxpayers including earned income credit, child tax credit, making work pay tax credit, child and dependant care tax credit and education tax credits. A professional tax preparer or advisor may be able to help you determine which credits you are qualified to receive.
2. Claim Charitable Contributions
Contributions made to qualifying organization can be deducted from your federal income taxes. Qualifying organizations include religious, educational, literary, scientific, charitable, certain amateur sports organizations and other non-profit organizations. If you have questions whether or not an organization qualifies for a deduction, you can check with the Internal Revenue Service, publication 78.
If you donate property to one of these organizations, you can deduct the fair market value price of the property. Charitable deductions are normally limited to 50% of your gross income. You must obtain a written statement from qualified organizations for payments or donations of more than $75. The statement must list an estimate of the value of services or goods donated. If you expect to receive some sort of benefit for making a contribution or an organization, you are not allowed to claim this as a tax deduction.
3. Claim Medical Deductions
You can claim medical expenses for yourself, your spouse and your dependents on your federal tax return if they do not exceed the adjusted gross income by more than 7.5 percent. Keep track of everyone’s medical expenses, no matter how small. These small expenses can accumulate to help you meet your deductible tax for the year. In some cases, medical expenses may be claimed for a parent who is not considered your dependent. Items that you may overlook as medical expenses include travel expenses to and from doctor’s visits, money paid for long-term care insurance, corrective laser vision surgery and the cost of a substance abuse treatment programs.
4. Itemize Your Tax Deductions
You should be itemizing your tax deductions if your itemized deductions are greater than the standard deduction allowed for your federal taxes. If you choose to itemize your deductions, you will not be able to use the 1040EZ form but will have to complete a form 1040. On the form 1040, you will be able to list each individual tax deduction you will be claiming.
Homeowners can claim an additional amount to the standard deduction for property taxes paid on a principal residence. Itemized deductions normally fall within the categories of medical, taxes, charitable contributions, theft losses and interest expenses. Itemizing is a way to make sure you are claiming the maximum amount of tax deductions and may require the advice of a qualified tax consultant too.
5. Keep Detailed Records
Keeping accurate and detailed financial records is key to maximizing your tax deductions. Save all receipts that you will need to prove an expense you have claimed as a deduction. Not only should you save all receipts but you should also document receipts and file them in a way you can access them when needed. There are software programs available to help you keep track of personal expense items that you will need for your tax records.
See Also: How to Survive Tax Season in the US
It is not too early to start preparing for next year’s US federal income taxes. Start planning, to maximize your deductions now and avoid being taken by surprise! You worked hard for your money, so learn how to keep more of it in your own pocket.
Do you know any great tax saving strategies? Feel free to share them in the comments below.