Helpful Tips
10 TOP TAX TIPS FOR PREPARING YOUR INDIVIDUAL TAX RETURNS
1. IRA Deduction.
Take the maximum IRA contribution available to both the taxpayer and the Spouse. Note a non-working spouse can also contribute $5,000 subject to taxpayer having earned taxable income equal to the amount of IRA contributions. You can also contribute as much as $6,000 to the account of a nonworking spouse over age 50.
2. Mortgage Interest & Property taxes deduction.
If you own a home, claim the itemization option on Schedule A, as you are entitled to deduct property taxes, mortgage interest paid, along with prepaid points (if you paid these upfront, otherwise you have to amortize these costs over life of loan) and state income taxes.
3. Investment related expenses
The following are deductible expense in this category;
If you incur fees for safe deposit box to hold investments (e g Stock Certificates);
Investment advisory fees
Penalty on early withdrawal of on Savings
Worthless security/stock
4. Charitable Contributions.
Make sure that you save all your cancelled checks for charitable donations made in 2010. For non-cash donations, make sure the donated clothes are in good conditions; have them valued if it appears that the value exceeds $500.00.
If you have traveled in connection with charity work then the mileage is deductible at a rate of 14 cents per mile. You must have kept records of charitable purpose, dates, places, and miles. However, the value of your services is not deductible.
5. Medical Expenses
Medical Expenses have to exceed 7 ½ % of your Adjusted gross income in order to be deductible on the federal tax return. Nevertheless, for certain states like New Jersey, there are no restrictions to exceeding certain AGI amounts, so I would recommend that you accumulate these expenses and provide to your accountant for inclusion on the federal tax return. Remember, there are a lot of expenses that you can claim under this category, medical, dental, vision, medical insurance premium, long term care and cost of prescription drugs. Learn to save your receipts.
6. Taxes and Preparation Fees
In addition to the tax preparation fees, you are entitled to deduct Audit fees incurred in connection to an IRS audit. Also, deductible are IRA trustees administrative fees that are billed separately. Finally, don’t forget to deduct foreign taxes paid, these are reported usually on your broker statement, and can be seen also on 1099-Div statements as well.
7. Standard Mileage Rate
For 2010, the standard mileage rate for cost of operating a vehicle used in trade or business was 50 cents per mile for all business miles driven. For 2011, this amount has been further increased to 51 cents per mile. Note however, the IRS requires the taxpayers to maintain a daily vehicle log report to substantiate business mileage use.
8. Student Loan Interest and Tuition Fees
The most commonly overlooked expenses are tuition payments, interest paid on a student loans, and educational credits that is, hope credit or lifetime learning credit.
9. Child Care deductible expenses
If you pay someone to care for your kids (under 13), you can get up to $6,143 in tax credits.
10. Tax relief for foreclosures
Recent legislation provides tax relief to people with a home loan that was reduced, restructured or foreclosed. Taxpayers that qualify may not have to pay taxes on the amount of debt that was forgiven by their bank.
TOP 10 TAX TIPS FOR BUSINESS/SELF-EMPLOYED
The following tips are commonly known, although many do not use them well.
1. Keep good records.
While a good accountant may be beneficial to your business, and services of a quality accounting service are fully deductible, this is often not a financial option for smaller businesses. However, good record keeping is always an option. Most computer programs have minor accounting programs that will handle basic record keeping for a small business.
2. Office space is deductible.
Maintaining an office in your home or business site, both require space and there are allowances for a home office. Specifically the square footage that is dedicated office space for your business, any and all equipment purchased to operate your home office, and improvements made for the purpose of efficiency.
3. Business expenses are important.
Along with keeping good records, it’s extremely important that you keep records of all business expenses. A daily diary where you log any expenses for business costs is an excellent way of managing your petty cash. A checking account to pay all larger costs is imperative. If credit cards are used, you must keep detailed expense records, in order to deduct interest on cards. (Mentioning these in your daily diary is an excellent method to keep track of them.)
4. Childcare is deductible.
Even when your business is home based, childcare is a deductible personal expense. Often household help is overlooked as a deduction, when in fact it is often a necessary expense, and the reality is you are creating income for another person. Lawn care and household help are both business related expenses.
5. Set up a Retirement Plan.
A retirement plan not only benefits you later in life. It is a method of reducing your current tax liability, and often reducing taxable payment on a set amount of money during any point in time. Your taxable income at retirement will most likely
6. Employ family members legitimately.
If you have family members who can do various aspects of your business, it makes sense to employ them and offer benefits related to health care and retirement/college funding. (Although these benefits must be paid for all employees, your tax savings may benefit this payment.)
7. Defer billing/income.
If you work on a cash basis and realize payment of a specific job is going to shoot you into a higher tax bracket for a specific year, it is acceptable to defer billing/income to the next year, decreasing your tax bracket. This method isn’t recommended for many uses, but if your next year income will increase you to a higher level in the next bracket, this method may be recommended.
8. Year-end investment purchases.
A continuation of the depreciation benefits, year-end purchases of necessary equipment for your purchases can increase the value of your business while decreasing your tax liability. Planning for new purchases when the year has been particularly profitable, makes sense for several reasons. Your business will be more profitable with newer equipment, resulting in increased income.
9. Get health insurance
Let your business pay for medical insurance for you and your family and deduct the full cost.
10. Get the right help.
Often a small business denies themselves quality advice because of the cost, without realizing those costs are deductible, and pay off in the long run. A quality accountant, or a tax consultant who knows the law well enough to advise about purchases, investments, and appropriate deductions can save your business money, by offering excellent advice.
RETIREMENT TAX TIPS
1. Medical and dental expenditures.
Your medical bills usually go up as you get older, and the good news is that most of the cash you dole out at the doctor’s office can come back to you in the form of tax deductions. In fact, everything from doctor’s visits to insurance premiums to prescription costs can be used as a tax deduction, up to 7.5% of your adjusted gross income.
2. Selling your home.
Retired people often sell their homes to move into smaller places or retirement communities. If you’ve lived in your home for a long time, you probably have substantial equity and will earn a large profit on the sale. Fortunately, you may not have to pay any tax on your profit. As long as you live in your home for at least two out of the five years before you sell your house, the profit you make on the sale — up to $250,000 for single taxpayers and $500,000 for married taxpayers filing jointly — is not taxable.
3.Saving account.
Even if you are officially retired, you can still make contributions to your retirement savings accounts. Put some of those home sale profits into your retirement savings account, and then take the amount of your contribution as a deduction on your taxes
4. Small business.
Consider starting a small business during your retirement years. The business doesn’t have to be demanding; you can simply parlay a hobby into a money making venture. The business doesn’t have to turn a huge profit, either. As long as you can prove that you have the intention to make money, then the IRS looks upon your venture as business. Once your business is established, you can deduct all of your business expenses from your taxes. If your business is run out of your home, then that means you can deduct many of your normal living as at least partial tax deductions.
5. Charitable contributions.
Retirement is a time many people think about giving back to their community by making charitable contributions. Such contributions are deductible as itemized deductions; however, they are subject to special limitations. Cash contributions of up to 50% of your adjusted gross income are deductible each year as an itemized deduction
6. Remember to increase your standard deduction amount.
After you retire, as long as you don’t itemize your returns, then you are eligible for a larger standard tax deduction amount from the government. Don’t forget to claim it!
7. Volunteering deductions.
If you do any volunteer work in your free time then you may be able to deduct any out-of-pocket expenses you incur. They must all be directly related to your volunteer activity, and the organization you volunteer for must be a qualified organization approved by the IRS.
8. Increased standard deduction.
If you are over the age of 65, or have gone blind before the end of the year, then you are entitled to a higher standard deduction. But remember, if you take the standard deduction you will not be able to itemize your return.
9. Stock losses.
Millions of people have taken losses in the stock market lately, and many retired senior citizens are having the same problem. If you claim your stock losses now, they can later be used to offset your gains. In addition to this, you can deduct up to $3,000 in capital losses a year against ordinary income. Any loss remaining can also be carried forward into future years to be used until it is depleted.
10.401K.
One of the most important retirement tax tips is to roll over your 401(k) as soon as possible. If you’re between age 55 and 59 and 1/2 and would like some of the funds immediately, make sure you take out what you need before you roll the account over.