Did you pay too much in tax to the Internal Revenue Service last year? Would you like to save on your taxes from now on? If you've been sick of paying taxes to the IRS and are really looking for ways to save the money and use it for something else, we strongly recommend you to read the entire page.
Taxes can be reduced with the help of effective tax avoidance strategies. Tax avoidance is a legal thing to do and completely different from tax evasion. Tax evasion is the purposeful evasion of payment of tax that the individual is liable to pay. It is illegal.
According to Investopedia, Tax Avoidance is defined as the use of legal methods to modify an individual's financial situation in order to lower the amount of income tax owed.
It's accomplished by making certain investments that allow you to claim deductions and credits. In this article, we're going to share 10 tax tips or tax avoidance strategies that you can use to save money.
Here are the 10 tax tips to save you money...
1. Job-Related Auto Expenses
The IRS allows you to debit your job-related auto expenses if your employer fails to reimburse you. As of 2013, the IRS allows you to deduct up to 55.5 cents per mile. If the employer pays you less than 55 cents per mile, the difference can be deducted from your income.
This is a handy deduction and can be claimed by submitting the form 2106. Most people including business owners are not aware of the gas mileage discount that the IRS offers.
You can deduct your auto expenses in two ways:
a) Standard mileage deduction
This involves deduction of your auto expenses at 55 cents per mile based on the distance you've traveled. The amount may have changed depending on when you’re reading this. Be sure to check with your CPA or the IRS's website to be sure of how much deduction you can really claim.
b) Deduct exclusive portions of your auto expenses
The second method may require you to consult a CPA and deduct appropriately. It's a complicated process and involves deduction from your regular automobile expenses such as gas, repairs, insurance, and maintenance costs and so on. You may experience difficulty calculating this. In that case, the best option is to consult a CPA.
IF you've been attending charitable events or visiting charitable organizations for volunteer work and community service, you can deduct your travel expenses for that as well.
If you encounter fees such as parking, toll fees, bus fares and flight fares while doing charitable work, you can claim a deduction for that as well.
2013 IRS Standard Mileage Rates:
56.5 cents per mile for each business mile driven
24 cents per mile for moving or medical related travel
14 cents per mile for travel in relation to charitable work
2. Job/Work-Related Education Expenses
If you've enrolled in an educational course in the current year, you can claim a deduction if it was required by your employer or the qualification was needed to keep your present salary and job.
Here are the requirements set forth by the IRA to claim a deduction for Job Related Education Expenses:
The education course that you took is mandatory in order for you to keep your present salary or job. Your employer should have required you to possess the skill that the education course fulfils.
The educational course improves your skills and knowledge in your present line of work or field as required by your employer
If the educational course is the minimum qualification required to engage in your line of work, you are allowed to claim a deduction.
Quality managers that are taking up a lead auditor or an internal auditor training program to learn about new compliance standards can claim a deduction if required or endorsed by the employer.
Similarly, if the sales firm or the sales agency you work in requires you to complete a course in sales or take up a seminar, you can claim the deduction.
3. Deduct for set up of a home based office as required by the employer
If you've been using a home office as a base to work for your employer, you can deduct the expenses that you encounter. This includes expenses you encounter such as software, computer, and electricity and so on. Claim as much as you can.
Here are the conditions for which you claim the home office deduction:
If the organization you work for does not have a headquarters or a branch in you particular city
If the organization required you to do administrative paperwork and other duties from your home apart from your regular work at the main office
Rules for claiming the deduction:
Home office has been used to meet customers of the organization
An exclusive area of the home that has been set aside as an office and is used exclusively for that purpose
Your home office needs to be your primary office. You can't have another office at your employer's organization
4. Moving Expenses
If your employer required you to move your location and the employer did not reimburse you for the move, you can deduct the moving expenses that you encounter including the rental advance costs, packaging costs, etc.
5. Vehicle Donation
If you've been considering purchasing a new vehicle and are thinking of selling your old vehicle, hold for a moment. If your old vehicle does not amount to much, we strongly recommend that you consider donating it.
The IRS allows you to claim a deduction for donation of any of your vehicles such as a car, boat or RV. The exact amount you can claim is dependent on your vehicle, its current market value and the charity you donated to.
6. Energy Saving Products
If you have any energy saving products in your home that you've purchased such as solar panels, energy efficient windows, etc you can claim deductions on those expenses. The exact amount you can claim may vary depending on your state and the type of product you purchased.
7. Give away assets to your children
You are eligible to claim a deduction by gifting assets to your children or grandchildren. If your current asset value is greater than the exclusion amount as set by the IRA, you can reduce its value by giving away up to $13,000 each year to your children or grandchildren (i.e. heirs).
If you have three children, you can gift $39,000 and claim deductions on it. If you have grandchildren, you can claim a deduction by paying for their education expenses.
8. Child's summer camp expenses
If you have a child under the age of 13 and you are sending him/her away to the summer camp, you can claim a deduction on the expenses you encounter for the camp.
9. Deduction for capital loses
If you regularly invest, you may be subject to tax on the capital gains you make from the investments. If you encounter any loses, you can deduct it against the gains you make and pay little or no tax at all.
10. Plan your retirement accounts
The best and the most common method of saving your tax is by planning and funding your retirement accounts in the best manner possible. This requires some extra planning on your part.
We recommend setting up a Roth IRA and claiming a deduction on that. The Roth IRA account allows you to enjoy returns on your investment without being liable to tax. And if you withdraw money from your IRA account after you turn 59 years, you do not have to pay taxes on your returns.