Over time as you increase your bottom line (Gross Wages/Profit), taxation continues to gouge out a larger crevasse in the foundation of all your hard work. In order to really benefit from having that higher salary, you must maximize your tax deductions, which in turn, minimizes your taxable income and that increases your refund. Or lower your tax debt considerably.
As far as tax deductions are concerned, there are some things one needs to know in order to benefit from this little loophole in the theory of paying taxes. The short of it is, if you can cover your tax debt by having a large enough deduction you lower your taxable income thus increasing what you get to keep. (Or lower what you have to pay) To most business people this is elementary however, this is not well-known to most regular taxpayers. Since we are not taught individual taxes in school or even on regular college levels, most taxpayers file blindly and say “Down with taxes!!!”.
Ignorance is definitely not bliss when it comes to your taxes.
Tax deductions are the difference between the independent and the dependent. Keep in mind that all deductions must be accountable. However, there are many ways to account for deductions ethically and unethically and you only have to keep receipts for three years. Now whether you have receipts or not is one of those ethical/unethical issues I mentioned. The unethical methods will not be discussed. I am a professional and not obligated to express certain issues regarding unethical tax deductions. Emails are a different thing though.
The number one best way to inform your-self about your taxes is to go to the IRS website. (Use .gov instead of .com) Then type pub 17 in the search box and no, it’s not a cool new bar in your local government building. The Publication 17 is an Individual Tax Guide that covers all the basics when it comes to, you guessed it, paying taxes. The guide can be downloaded for free and can take a few minutes even with the fastest connection, but very much worth the time and trouble. The download time is not exaggerated due to the fact that it is about 300 pages long and has to be filed in Adobe reader.
If you’re downloading things from the internet on a regular basis with no problems, just follow all wizard instructions and you’ll be fine. If not, get a friend to do it. By all means, spread the word about this good book.
This is also a great site to get nearly all of your tax questions answered. You can do things from downloading forms and publications to finding out how to file your taxes, online, for free. (Just click the “E-File” icon, follow the instructions and find a link that suites your purpose)
However, most free e-file websites require an AGI of under $50,000 and a standard 1040/1040ez preparation. (No Deductions/No Dependents) There are a few sites that allow for one or the other, you just have to take your time and look for them.
To get back to tax deductions and claiming them, always remember, unless you claim deductions higher than your wages, chances are you will not be audited for claiming deductions. I worked for a tax preparation service for the last four years, (The initials are JH) I have had my own clients for the last ten or so, and I’ve prepared my own taxes nearly every time since I started working over twenty years ago. So I know a few things about taxes
For the last four years I have also found that most people are afraid to claim deductions for fear of being audited. Roughly there are only about four hundred and ninety-five people audited each year in this country. Try the math on that one.
With five billion people in the world, there is a very slight chance for the majority of the population to be audited.
And just one note for the self-employed and the “under the table” people, if you haven’t filed your taxes for the last ten years, you have a higher chance of being audited. The truth can be a harsh mistress, but if you choose to take that path then you have to deal with the consequences which, means no refund check and a chance to spend some time in the federal hotel. However and I don’t want to condone any illegal activity, there can be huge benefits in those methods of producing income and not filing your taxes.
Just look at Capone or Willie Nelson, that alone shows two different sides of getting audited. Capone was audited by the Internal Revenue Service for not paying taxes on services rendered and goods exchanged, which is how the government finally indicted him. Willie Nelson was audited by the IRS because his bookkeeper didn’t, (Keep Willie’s books that is) so he visited the lovely facilities of the government correctional system for a short time. Albeit, in a very minimum security.
Now that I’ve belayed everyone’s fear of being audited, here is an abridged list of tax deductions that individuals or businesses might be able to claim;
Medical and Dental Deductions
Visits to the doctor, (the dentist, regular check-ups and hospital/E-room) operations, prescription drugs, medical and dental insurance expenses, long-term care expenses, lab/ex-ray, in home care, This category has sub categories like batteries for hearing aids and even air conditioning units per doctors request or advice.
Most any contribution with monetary value (Church, colleges, nonprofit organizations and volunteer work) can be claimed as a deduction, including Goodwill. The tax regs change each year, but I can say that one bag of clothing to Goodwill has a Fair Market Value of about twenty-five to fifty dollars, without actual receipts for the clothing. You just have to get a receipt from Goodwill when you donate and determine the value on your own. An internet search can provide more info on this or refer to the appropriate year Publication 17.
Under the “Taxes” category, real estate tax, property tax and even your state income tax can be claimed. Interest paid, casualty loses, miscellaneous/employee expenses, self-employed business and education expenses are other categories under deductions. A full list of deductions can be found at the IRS website or at your local tax prep service.
When it comes to having receipts and not having receipts, everything you purchase with a credit card can be tracked, so there isn’t a need for those receipts. Receipts are mainly needed for figuring out your deductions. The government requires you to keep them for proof in case you get audited. I am not going to say any more for fear of incrimination.
I can’t impress the full weight of getting your hands on a copy of the Publication 17 and getting to know it well. This book alone can answer nearly all of your federal income tax questions. However, if anybody has any questions feel free to contact me and until next time, thanks and have a great day.