No matter how you prepare your taxes, using pencil and paper, using a software package or hiring a professional preparer, it is to your advantage to take every available deduction on your income taxes and every valid credit, so that you are minimizing taxes paid.
Take the Tax Credit
As a basic rule, tax credits mean more to you when compared to tax deductions, since they actually decrease your tax payment for each dollar.? Additionally to deducting education credits, don’t forget to deduct the child tax exemption that applies to each child under 17 years old.? If you are eligible, this could be $1,000 for each child.
If you have children, don’t forget to take tax deductions for costs associated with child care, day care and summer camp (but not for a sleepover camp). These could save you as much as $2,100 on your taxes.
To find out if you are eligible for the “foreign taxes paid” deduction, check your statements. This applies if you have invested in mutual funds invested overseas and may have paid foreign taxes on them.
Taxpayers with lower incomes need to know all about Saver’s Credit. It’s meant to encourage taxpayers with lower income to save their money for the retirement years, and the maximum amount for this credit is $1,000.00.
Owning a business comes with many pros. According to the expense election of section 179 business owner who invest in products like cars, furniture, and even computers can benefit to up to $125,000. There are however some limitations to this qualification.
It could be that the most valuable deduction that will come your way, will not even require you to spend money to get it. Suppose a proprietor decides to get two new cars, if he relies on financing, you can use credit to purchase one car, thus acquiring $60,000 deduction and at the same time save this money.
Still you can reduce your partner’s taxable income through deduction. Suppose you are a contractor and your partner works and she gets a W-2. Then as per section 179 you can offset your losses from her W-2 amount. Much as it might initially be zero.
It takes a lot of capital to start a business, so one way to save money is to take the Section 179 deduction to bring down the spouse’s earnings to almost zero.