Inventing tax deductions seems like risky business. It is not a matter of inventing tax deductions. You can learn to do things and spend your money in ways that can make it deductible at tax time. Creating deductions requires thought and paying attention to your way of working and living. By learning a few tips, it is possible for many people to learn to create enough deductions to save hundreds per year in taxes.
Go to school.
College costs are still given tax credits. While these are not true deductions, they reduce the tax you owe. In some ways, they are better than a deduction. If you are planning to improve your educational credential, you can get there while saving some tax dollars to help defray the cost. You can get the same type of savings from helping pay your children’s way through college.
Give to charity.
Most people who are inclined to do charitable giving are not overly concerned with tax savings for it. If it is near the end of the calendar year, you can help this year’s taxes if you give in advance. During a year where your income has spiked, you can save some tax dollars by giving extra at the end of the year. You will not give as much next year, but the extra savings may be better this year. Next year, you can start early with your tax planning to save money.
Start a home business.
This one may seem a little stock. A home business will generate some income, but in the first few years, you may be able to help pay for a hobby while generating tax deductions. As long as you are taking in revenue for the business, you can deduct everything it costs to run the business. High start up costs for even a small business may let you show a loss for two or more years.
Track work costs that are not reimbursed by your employer.
More than likely, this will be a small gain. The IRS lets you itemize costs that you incur as an employee that are not reimbursed by your employer. There are limits and exclusions. So, do some research regarding what applies to your situation.
Save money in an IRA or a college savings account.
Tax free savings is always a good option to investigate. If you will not need the cash in the foreseeable future, these accounts are great for saving taxes while building a nest egg. The IRA cannot be tapped without a penalty until you are 59 1/2. The college accounts can be used for the person designated or you can switch people if needed. Unfortunately, it can only be used for college expenses.
Open a health savings account or a flexible health care spending account.
Employers offer flexible spending accounts to employees that are pretax. If you have a high deductible insurance, you can bank that amount into a health savings account and deduct it from your taxable income. Work with your employer or bank to make sure that these are set up correctly.
Invest in tax exempt bonds.
Actually, there are several types of bonds and investments that have tax benefits. Because these change from time to time, it is best to work with a broker or investment banker to get the best options. These investments grow tax free and sometimes have deductions for buying them.
Investigate energy credits for home upgrades.
If you are planning to make improvements to your home, you may be able to get some decent tax credits. Check with your large appliance dealers and home improvement stores for what is being offered. These businesses make sure to have up-to-date information because it encourages more sales for them. With the tax savings, you may be able to get better options for the upgrades plus the tax savings.