Earned Income Tax Credit | Time to Think about Taxes Again

Time to Think about Taxes Again

Lowering your tax liability

Industry analysts are predicting that a tangible change in the economy won’t be seen until mid-2010, but there are still some things you can do to lessen your tax liability this year.

• Contribute more to a 401k. Any money you are allowed to pay into a 401k lowers your tax liability. Taxpayers can add up to $ 16,500 if under 50 years of age, and $ 22,000 if over 50 years of age. There are still a few months left to increase contributions and cut down on taxes.

• Think about home ownership. It’s a buyer’s market and with a tax credit of up to $ 8,000 for first-time homebuyers from January 1 through April 30 of 2010, now is the perfect time to buy.

• Pay for a college education. The federal stimulus plan created tax breaks for college expenses. The American Opportunity Credit replaced the Hope Credit, and lowers tax liabilty for taxpayers to meet certain requirements.

• Get a new car. The stimulus plan also included a tax break for new-car purchases. Anyone buying a new car this year can deduct the state and local sales taxes and/or excise taxes on a sticker of up $ 49,500. Car.com expert Miles Bradman said, “This is the perfect time to get a new car and not just from the purchase price standpoint. In former years a consumer may have needed a large loan to cover a down payment, whereas now small unsecured personal loans could very well do the trick.”

• Give to charity. Taxpayers who itemize deductions can sometimes write off charitable contributions. Martin Berg, the industry analyst of Money.com said, “A lot of people forget to count their cash gifting when calculating donations. Always include noncash donations, appreciated stock, and cash. They also count out of pocket donations to charity, like a 14 cents per mile in travel costs for doing charitable work.”

• Self-employed tax breaks. Self employed taxpayers have a lot of ways to deduct from taxes. Costs of equipment, such as fax machines, computers, or printers, can often be deducted, along with any home office expenses, like rent, homeowner’s insurance, and utilities.

• Medical Expenditures. For those who itemize deductions, medical expenses can lower a tax bill substantially. A taxpayer qualifies for this deduction if expenses for medical costs exceed 7.5% of adjusted gross income. Tax experts advise that you should keep track of medical bills and be ready to use them when tax time comes.

Use the various deductions wisely

In the end, it is possible to decrease tax liability by using any or all of the above tools. For any taxpayer who believes that he or she may have a large tax liability for 2009, it’s useful to know what the rules are for taking deductions. They can make the difference between having to come up with a substantial amount of money, breaking even, and even getting a refund.

Before you make any decisions concerning tax reporting or the claiming of tax deductions, be sure to get advice from an experienced tax professional.

Filed Under Earned Income Tax Credit | Leave a Comment

Tagged With , ,

Comments

Leave a Reply