The discussion concentrates on methods to reduce your taxes and potential risks leading to a delayed return or an audit. There’s another section on tax exemptions which differs from tax deductions. The idea is to keep more of the money you made and:
- reduce your tax income
- find personal tax deductions
- find tax credits
This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified tax professional.
There’s a long list of possible personal deductions. Consider any expense that helps you make money, offers protection, or fulfills the direction of a doctor. Review those types of expenses with a tax professional to determine if they qualify. There are plenty of interesting cases that have won in the Tax Court that may not seem obvious.
Powerful Cover Letters
A prerequisite for a job interview usually requires to critical documents: RESUME and COVER LETTER. Draft a strong but concise cover letter. Keep it simple yet effective. Learn more.
First off, educate yourself on the topics to help understand which are applicable to your situation. Three terms are commonly used when discussing taxes:
Allow you to deduct from your income before you calculate the amount of tax owed. Therefore this could result in a lower tax bracket by reducing the taxable income.
These were effectively discontinued until 2025 as part of the Tax Cuts and Jobs Acts in 2017. Deductions have been increased to compensate for the loss of personal and dependent exemptions.
Dollar-for-dollar subtractions from the amount of tax owed. These come in two types refundable and nonrefundable. The difference is a tax reduction reduces your taxable income where as a tax credit reduces your taxed owed dollar-for-dollar.
The page focuses on individuals. For businesses, click here to review IRS offered credits and deductions.
For personal income taxes there two options for tax deductions which only one can be selected. Therefore it’s important to determine which path provides the best return.
- Standard deduction
- Itemized deductions
The types and details around tax deductions frequently change. Listed below are a few to consider.
Student Loan Interest: Depending on your income this interest may be deductible up to $2,500. Learn about other ways to reduce the costs of college related expenses.
Medical Expenses: it may be possible to write off these expenses if you itemize your deductions and you’ve spent more than 10% of your adjusted gross income (AGI) on qualified medical expenses. Learn about other ways to reduce medical expenses or file a complaint if you feel your bills are excessive.
Mortgage Interest: The interest paid on a primary home mortgage may be eligible for a partial deduction.
Property Taxes: Local property taxes may be eligible for partial deductions.
Business: Expenses related to your business may qualify as business-related expenses such as a computer, furniture, supplies, travel, vehicles, meals and home office space.
If you’re company has ask you to work from home consider asking them to compensate you for related costs such as a printer, copier, scanner, paper, and more. If you’re making phone calls or using your internet you may also consider requesting assistance to pay those fees. This list goes on but be reasonable and fair; greed may lead to problems for you down the road. If you ask them to pay a portion of your electric, heat, and water bill this may be going to far.
Charity (Donations) – see section below.
Job Interview Preparation
Like most things in life, you get out of it what you put into it. Preparation is key to put your best foot forward during a job interview. Practice, repetition, presentation, body language, choice of words, and confidence. Learn more.
You can only deduct charitable contributions if you itemize deductions on Schedule A (Form 1040 or 1040-SR), Itemized Deductions (PDF). Of course there are qualifications for a donation to be deductible. Donations to individuals are not deductible. Keep records of contributions. The link below is to an IRS site that explains in further detail.
Making expenses tax deductible may be more possible than you think.
Tax credits get applied to the tax amount owed and reduce this amount dollar-for-dollar. There are two types:
- Refundable – provides a refund up to amount and greater than you owe.
- Nonrefundable – provides a refund up to the amount but not greater than the amount owed.
Common Tax Credits
There are many tax credits available for individuals. Since the available credits change frequenlty work with a tax professional to help determine if you qualify. The links below are references to the IRS website that explain the programs and qualifiers. The button at the bottom pertains to small businesses and tax-exempt organizations.
Education – check out the quiz below too.
Residential Energy Credit – nonbusiness energy property credit and residential energy efficient property credit.
FOR SMALL BUSINESSES – Health Care Tax Credit
Check your eligibility for a tax education credit with this simple 10 minute quiz developed by the IRS.
Protective Mortgage Insurance (PMI)
Deductions can help reduce your tax obligations. One key deduction that has been resurrected is a deduction for premiums paid for private mortgage insurance (PMI). This originally expired at the end of 2017 but Congress has extended it through 2020 and making it retroactive for 2018. Contact your tax preparer to determine if it makes sense to amend your returns to get more money back.
PMI premiums are normally added to conventional loan payments when the the downpayment is less than 20% of the original loan amount. The principle of PMI is to protect the lender taking on more risk with <1/5 down. The cost of PMI normally depends on the type of loan, down payment amount, length (term) of loan, and your credit score. Typical rates are 1-6% annually of the original loan amount.
You’ll typically pay PMI in addition to your monthly mortgage payment on a loan that has it’s own interest rate. Some lenders may allow you to pay the PMI premium in one lump sum or a combination of both. If you plan to make extra loan payments to get to the 20% threshold sooner than the standard amortization plan, you may not want to pay a lump sum up front. A downpayment closer to the 20% mark relieves you of these PMI fees sooner than later (assuming you make payments to get to the 20% mark). Once you get to 20% you’ll be paying interest on the loan instead of the loan interest + PMI interest.
Protective Mortgage Insurance
How to avoid a tax refund delay
E-filing normally results in a quicker return than paper filing. The quicker you get your money the quicker you can use it to pay down debt (reduce long term interest), gain interest, or take care of other goals, investments, etc.
Filing Early can help avoid risk
Fraudulent claims made by someone that has your personal information (in particular your SSN) are usually done as soon as the tax season opens. This way the scammer gets to pocket your return before you file. Filing early can help avoid this from happening.
Procrastination reduces your margin for error. Allow time to address mistakes, gather more documentation, or refine calculations. Each year can bring on new personal circumstances or the federal and state law could change. This can throw a wrench into a tax preparation process. Procrastination can even bring on the need to request an extension which creates more headaches and possibly cost. If you owe money, this could lead to penalties and interest over the extension period.
Review your return before submitting
Take a look at your return and try to “poke holes in it”. Challenge it. It takes time but it may save a lot more time and hassle later. Double check the figures, the math, and ask yourself if you’ve considered everything. Think about events that occurred throughout the year (donations, gifts, inheritances, stock moves, and so forth). Leaving out an income/expense event could increase or decrease your amount of return but accuracy is likely to be the best way to avoid a delay…and the risk of a future audit.
Join The Discussion
Login and contribute to help yourself and others get their hard-earned money back and make the wrong.....right.
Comments are moderated so they may not appear immediately. Do not post any personal information relating to yourself or anyone.
Here's another on-line option for Seniors that provides various tools, coupons, and discountsre to help you save money. They also offer basic information to live a thriftier and healthier lifestyle. "Senior Advantage customers get access to a deal portal, budgeting...
The FCC is tracking hundreds of companies that have already pledged COVID-19 support to help consumers. This pledge includes to: not terminate service to any residential or small business customers because of their inability to pay their bills due to the disruptions...
Shipping and Handling fees may only be a few dollars per item/shipment but these can accumulate to a meaningful amount. Sometimes this can be a high percentage of the total costs and that tends to be when it grabs our attention. There are some ways to offset and/or...
Reoccurring Subscriptions Reoccurring subscriptions can be a sneaky monetizing approach for companies to continue siphoning your money when you no longer need the service. You most likely signed up for it but in reality you no longer use the subscription or you can...
Reporting Phone Fraud and violations related to the FTC”s National Do Not Call Registry.