The current expenses for federal taxes range between 10 - 40 percent, but you can reduce your expenses by being smart about claiming deductions and credits. There are a lot of opportunities, mainly, for self-employed workers and business owners to reduce expenses for taxes and improve cash flow.
Keep reading to discover 7 legal tips to lower your tax liability.
1. Write off business travel expenses
If you want to reduce your expenses try to combine a vacation with a business trip. You can lessen vacation costs by writing off the money spent for business purposes. These expenses include airfare and part of your hotel bill. The deducted expenses should proportionate to the time you spent on your business activities. If you aren’t sure how to do this, contact tax accountant Sarasota about how to calculate this correctly.
2. Open a health savings account
You can make health savings account if you have an eligible high-deductible medical plan. These accounts allow an immediate tax deduction, grow tax-deferred, and can eliminate taxes for qualified medical expenses. The balance left at the end of the year can roll over indefinitely just like the assets in a retirement account.
3. Get credit for higher education
The government can give you valuable tax credits to compensate for the cost of higher education. This credit can be claimed within the first four years of college and offers a maximum credit of $2,500 per student each year. Since it's a credit, that amount is deducted from whatever tax you might owe the government. If it is higher than the amount of taxes you owe, you may refund up to $1,000.
For adults who want to boost their education, the Lifetime Learning Credit will be more profitable. This credit offers up to $2,000 each year and helps you pay for college or cover educational expenses that improve your professional skills.
4. Claim a home office deduction
If you work for yourself or have a side business, you can take the home office deduction. This allows you to get a percentage from your home expenses using Schedule C. To get the deduction, the space in your house must be used regularly and just for business purposes. For example, if you have an extra bedroom that is used particularly as a home office and it constitutes one-fourth of your living space, you can get one-fourth of rent and utility fees.
5. Deduct half your self-employment taxes
While employers divided the tax expenses with their workers, self-employed individuals have to pay the entire amount themselves. To compensate for these extra expenses, the government can let you deduct 50% of the amount paid from your income taxes. This is very convenient because you don't even have to itemize to claim this tax deduction.
6. Itemize state sales tax
Taxpayers listing their deductions can include either their state income tax or state sales tax on their Schedule A form. The state sales tax break is an excellent option if you live in a state with no income tax. If you use a spreadsheet provided by the IRS to easily claim a sales tax deduction, you should remember to add sales tax on any major purchase, such as a car or house. The federal tax deduction for state and local taxes is capped at $ 10,000 of all origins.
7. Make charitable donations
Charitable donations made with payroll deductions, checks, cash, or donations of goods are all deductible. These deductions often remain overlooked because people forget about their non-cash contributions. To claim the deduction, it is important to get receipts for all donations.
You may try to make your itemized deductions in one year. For example, you may want to double up on charitable donations in one year instead of making it over two years. This can help increase your total of itemized deductions over the threshold of the standard deduction.
