To Begin, let’s take a look at income
Tax Tip #1. Shift your income from one year to the next. You pay tax based upon the amount of income you receive in any one calendar year. If you are able to delay receipt of monies owed to you until the next year without placing collection of those monies in jeopardy, then you could see tremendous savings. As part of President Bush’s tax reduction plan, income tax rates will be dropping in each of the next years through 2010. So why pay 38 cents on the dollar when you can pay 35 cents on the dollar simply by delaying income from December to the following January?
Tax Tip #2. Interest income. Interest on T-bills and bank certificates having a term of one year or less is not includable in your income until you receive it at maturity. If you have money in a basic savings account, you can delay tax on the interest yet to received this year by transferring funds to these types of certificates.
Tax Tip #3. Flexible Spending Arrangements: A flexible spending arrangement (also known as FSAs) allows an employee to get reimbursed for medical or dependent care expenses from an account they set up with their employer using pre-tax dollars. Under this program you reduce your taxable income by transferring a portion of your salary into a separate account. As you incur expenses, the fund reimburses you. The benefit is that you are using pre-tax money to pay for these expenses rather than money that has already been taxed.
Tax Tip #4. Incentive Stock Options. If your employer offers you stock in the company you work for, take it. You can gain shares of the company, often at a discount, with no taxable event to you. This means, until you sell the stock, you do not have to pay any tax on the income. You then pay tax on the difference between the price you and your employer agreed upon and the fair market value of your stock.
Tax Tip #5. Tip Income: If you have allocated tip income reported on your W-2, you may want to keep your own daily log sheet instead of relying on your employer to do it for you. Many employers calculate allocated tips by a method approved by the IRS and hard work. If you keep your own log sheet showing the date and amount received during your shift, you are allowed to claim the lesser of the two amounts as your tip income.
Tax Tip #6. Series EE Savings Bonds. If you own bonds issued after 1989, the interest is tax exempt if the money is used for qualified education expense of a taxpayer, spouse or dependent. This is a little known tax loophole.
Tax Tip #7. Reporting all interest and dividends. Interest and dividend payments are reported to the IRS by banks, brokerage houses and other financial institutions, and are crosschecked in about 96% of the cases. The IRS attempts to match almost 100% of the returns that they receive on computer tape and more than 50% of those that are on paper. Not reporting one of these items is like asking the IRS to audit you.
Tax Tip #8. Capital Gains Tax Breaks. Generally, long-term capital gains rates are now 20% (10% for individuals in the 10% and 15% tax brackets) on any investments or assets that have been held longer than one year. A special rate of 18% (8% for individuals in the 10% and 15% tax brackets) applies to assets held more than 5 years.
Tax Tip #9. Sale of your Home. You can receive a tax-free capital gain exclusion of up to $250,000 if you are unmarried and $500,000 if you’re married and filing a joint tax return. The only requirement is that you must have lived in the house for at least 2 out of the past 5 years.
Tax Tip #10. Capital Gain Exclusion for Roommates. If you and your roommate own a home as tenants in common, you can each take an exclusion of $125,000 from capital gains tax when you sell your home. The general rule is still that you must have owned and used the home as your principal residence for at least 2 out of the past 5 years.
Tax Tip #11. Worthless Securities. Unlike normal claims for refunds, you have 7 years from the due date of your return to claim a refund based on a deduction of worthless securities. Since the loss for a worthless stock can only be claimed in the year it becomes completely worthless, the extended statute of limitations allows a taxpayer to deduct these losses at some future date. This holds true for both private and publicly traded securities.
Tax Tip #12. Social Security Lump-Sum Election. If you receive social security benefits for an earlier year, you can do a calculation to see if the tax on the benefits would have been lower if you had actually received them in the earlier year. If that’s the case, you can make an election to pay that lower prior year tax.
Tax Tip #13. Rent out your principal residence or second home. If you rent your principal residence or second home for 14 days or less, the income is tax-free and is not included on your tax return.
Next, let’s look at adjustments to income.
Tax Tip #14. IRA Contributions. As part of President Bush’s tax reform plan, significant changes have been made to the amount of money you can contribute to an individual retirement account (IRA) and other employer sponsored retirement plans. For traditional and Roth IRAs, the maximum contribution amount has increased to $4000 for 2005. This amount will increase through 2008 and will then be adjusted for inflation. Remember that contributions to a Roth IRA are not deductible, however, the earnings from the account are not taxable to you when you withdraw the money within the guidelines of the plan.
Tax Tip #15: Catch-up IRA provisions. New for 2005 is the implementation of catch-up provisions for taxpayers who have reached age 50. In 2005, those taxpayers will be allowed to contribute $4500 to their IRA which enables them to overcome earlier limits to their contributions.
Tax Tip #16: Spouse IRA Deduction: If one spouse does not work, or earns less that $3000 a year, a spousal IRA can be set up. This credit allows a qualifying couple to take a full $8000 deduction. Spousal IRAs will be allowed to incorporate the catch-up provisions discussed earlier.
Tax Tip #17: Child Over 14 Can Have an IRA: For those taxpayers who are sole proprietors and employ their children, they can increase the compensation of any child over age 14 by $4000 so that the minor child can open their own IRA. You can now withdraw money without penalty for qualifying educational expenses making this a better savings plan than the highly touted Coverdale Education Savings Accounts. The withdrawal is then taxed at the child’s rate when withdrawn without a penalty.
Tax Tip #18: Coverdell Education Savings Accounts. In case you are not self-employed, you can still gain some tax advantage by using the new Coverdale Education Savings Account as part of your child’s college savings plan. You can make a non-deductible contribute $2000 per designated child and the earnings on the contribution will grow and be distributed tax-free.
Tax Tip #19: Student Loan Interest: You can now deduct up to $2500 of interest on all qualified student loans for college or vocational school irregardless of when you first took out the loan. While the deduction will phase out based on your modified adjusted gross income, the limits will rise for the next few years and will then be adjusted for inflation.
Tax Tip #20: Adoption Credit. The credit available for adoptions has been made permanent and has increased to $10,000 per eligible child. Also, employees will be able to exclude from gross income up to $10,390 in adoption assistance benefits received from an employer. The starting point of the income phase out range for the credit and the exclusion was increased to $150,000 of modified AGI.
Tax Tip # 21: Above-the -Line Deduction for Teacher’s Classroom Expenses. For tax years 2002 and 2003, eligible educators will be able to deduct up to $250 for unreimbursed expenses incurred in connection with books, non-athletic supplies, computer equipment and other supplementary materials used in the classroom. Eligible educators include K-12 teachers, instructors, counselors, principals, or aides.
Third we will take a look at personal deductions.
Tax Tip #22: Medical Deductions: Allowable Medical Deductions include - and you may like to note these down for future reference:-
a) Air conditioner, heater, humidifier or air cleaner if necessary for respiratory ailments.
b) Cost of acupuncture treatment.
c) Mileage to AA meetings.
d) Clarinet and lessons as dental treatment to align teeth.
e) Saline and cleaner for contact lenses.
f) Health club dues if membership is related to specific medical condition.
g) Extra housing costs, such as rent and utilities, for live-in nurse or attendant, including wages for the live-in.
h) Wigs if necessary for the mental health of patient whose condition caused hair loss.
i) Mattresses and boards purchased to alleviate arthritis.
j) And last but not least…sex therapy at a hospital upon doctor’s advice.
Tax Tip #23: Prepaid Medical Expenses: A one-time medical payment for a lifetime of medical care in a nursing home is fully deductible in the year it is paid, even though the care may not be provided until some time in the future.
Tax Tip #24: Diet and Exercise Program: A medically required diet and exercise program is deductible. However, it must be prescribed by a doctor to alleviate a specific medical problem.
Now we’ll take a look at taxes you can deduct.
Tax Tip #25: State Disability Insurance: If you are required to pay for state disability insurance, based on your wages and deducted by the employer, you can deduct it on Schedule A as a state income tax.
Tax Tip #26: Special Assessments on Real Estate: Interest on permanent special assessments for sidewalks, sewers, curbs, etc. is deductible as real estate tax. Principal and interest on assessment for the maintenance or repair of sidewalks or streets is also deductible as real estate tax.
Tax Tip #27: Foreign Taxes: Foreign Taxes can be taken as a deduction or as a tax credit. You are allowed to calculate it both ways to determine the greater tax benefit.
Tax Tip #28: Personal Property Taxes: The portion of vehicle registration based on the value of the vehicle is a deductible personal property tax.
Now to deductible interest.
Tax Tip #29: Interest Deductions: When interest deductions are allowed, such as on house payments or lines of credit, you may make payments ahead of time and deduct the interest in the year the payment was made.
Tax Tip #30: Home Equity Line of Credit: Use this type of home loan to pay off personal debt or take that dream vacation. The interest is 100% tax deductible so long as the sum of the line of credit and the mortgage do not exceed the fair market value of the property. The IRS will disallow interest attributable to the excess of the financing over the fair market value. So-called 125% financing schemes promoted by many lenders are examples of this type of arrangement.
Tax Tip #31: Home Equity Line of Credit, Points: Points paid initially for a line of credit on your home are deductible over the period of time until the credit line expires. If, however, the funds are used for home improvement then the points are fully deductible the first year.
Tax Tip #32: Seller Paid Points: A homebuyer may deduct points paid by the seller on the sale of a home. Any points a seller pays is treated as an adjustment to the purchase price, which reduces the cost basis for the home.
Tax Tip # 33: Timeshare Homes: These are considered second homes for mortgage interest deductions are also 100% deductible.
Tax Tip #34: Interest Paid on Boats or Recreational Vehicles: As long as these items have basic living accommodations such as sleeping space, cooking facilities and a toilet, the interest paid is deductible as second home mortgage interest.
Next we have charitable deductions.
Tax Tip #35: Charitable Contributions Other Than by Cash or Check: Give your old clothes, furniture, appliances and other items away to your favorite charity. The fair market value of these items is allowable as a charitable contribution if you itemize your deductions. Make sure that you get a receipt. NO receipt equals NO deduction! Make sure you take a picture of your donated goods to help establish the gift.
Tax Tip #36: Mileage for Charitable Work: You can deduct 14 cents per mile for any charitable work, including trips to bring the old clothes or other items to the charity.
Tax Tip #37: Donate Appreciated Property to Charity: You may deduct the fair market value of appreciated property which may greatly exceed your cost. The charity must use it for its charitable purpose. Artwork to a museum or a painting to a church that hangs it on the wall, are examples of “use for its charitable purpose.”
Tax Tip #38: Beware of Foreign Charitable Donations: When donating money or goods for a charitable purpose outside of the United States, make sure that you donate to the organization’s US office to distribute the funds overseas. A contribution directly to a foreign organization is not deductible. Also, with the passage of the USA Patriot Act in late 2001, foreign charities operating in the United States are coming under greater scrutiny in an effort to cut off funding to foreign terrorist organizations. If a foreign charity is investigated, as a donor, your relationship with that organization will come under scrutiny and that will begin with your tax return.
Often overlooked are the following miscellaneous tips.
Tax Tip #39: Casualty Losses: These are the damage or destruction to property resulting from an event that is sudden, unexpected or unusual in nature. Casualty losses can be used to dramatically lower your taxes.
Tax Tip #40: Job Hunting Expenses: The expense of looking for a new job in the same line of work you are currently employed in is an allowable deduction whether or not you find a new job. Expenses such as travel, resume printing, and employment agency fees you pay are deductible subject to certain limitations. Expenses relating to seeking employment in a new line of work are not deductible.
Tax Tip # 41: Legal Fees: Part of a legal fee incurred in arranging a divorce or estate plan may be deductible if it is for advice on the tax consequences. Have your legal practitioner clearly indicate how much of the fee is for tax advice.
Tax Tip #42: Gambling losses: These are deductible on Schedule A as long as they do not exceed the gambling wins shown on Line 21 on Form 1040. But remember: Documentation is key. You must have receipts to verify you gambling losses.
Tax Tip #43: Deductions that are Limited: There are a number of deductions that are allowed only after you exceed a minimum amount. For example, only those medical expenses that exceed 7.5% of your Adjusted Gross Income are allowed. Alternatively, miscellaneous deductions are allowed only to the extent that they exceed 2% of your Adjusted Gross Income. Your best tax planning strategy here is to bunch your deductions into a single year to exceed these minimum requirements.
Next we will discuss Business & Employment related Deductions.
Tax Tip #44: Mileage Between Jobs: If you work two jobs in the same day, or take work-related night classes, the mileage between those jobs or between work and class is deductible business mileage. Also, if you business is based from home, all mileage between home and the work site is business mileage.
Tax Tip #45: Net Operating Loss Carry-backs: Effective August 6, 1997, net operating losses must be carried back two years; and forward 20 years. However, as part of the Job Creation Act of 2002, a special provision was enacted which allows NOLs arising after 12/31/00 and before 1/1/03 to have a general carry-back of 5 years and carry forward of 20 years.
Tax Tip #46. Net Operating Loss Carry-forwards: Normally, Net Operating Losses must be carried back first before they can be carried forward. However, you can elect to forego this mandatory carry-back by attaching a statement to your timely filed return for the year of the loss standing that you elect to forego the carry-back period.
Tax Tip #47: Business Assets: Rather than depreciate the cost of business property over several years, a sole proprietor, partnership, or corporation can expense in the year of the purchase up to $24,000 of tangible depreciable property used in the active conduct of a trade or business. This is the Section 179 deduction that can be combined with other depreciation methods to give you a huge write-off in the year you place the property in service.
Tax Tip #48: Special Depreciation: A new law now allows for a special 30-percent depreciation allowance for MACRS property acquired after September 10, 2001, and before September 11, 2004. This will allow a taxpayer to claim an additional depreciation deduction in the first year of service. This applies even after the Section 179 allowance has been deducted,
Tax Tip # 49: Under-claimed Depreciation: Under-claimed depreciation from prior years can now be fully recovered on the current year tax return. Previously, under-claimed depreciation could only be claimed on an amended return for that prior year.
Tax Tip #50: Interest Deduction Depends on Use of Proceeds: Interest on money borrowed to meet personal expenses is not deductible but interest on money borrowed to meet business expenses is deductible.
Tax Tip #51: Self-Employment Health Insurance Deduction: For 2002, up to 70% of health insurance premiums may be deducted.
Tax Tip #52: Standard Mileage Allowance on Leased Cars: You may now claim the standard mileage if you lease a vehicle. Previously, you could only take this rate if you owned the vehicle. You can now choose between the actual expense method, or the standard mileage rate. Figure what your deduction would be using both methods and then select the one that will produce the larger deduction.
Tax Tip #53: Education and Related Expenses: Education expenses are generally deductible if the education that is undertaken maintains or improves a skill required by the individual in the individual’s employment and meets the express requirements of the individual’s employer or is required by law.
Tax Tip #54: Real Estate Professionals Not Limited to $25,000 Rental Loss Limitation: If you spend more than 750 hours per year in regular, continuous and substantial real estate activity and it constitutes more than half of your personal service work for the year, you are not subject to the passive activity loss limitation of $25,000.
Tax Tip #55: Business Travel, Meals and Entertainment Substantiation Requirements: Two items are necessary to substantiate travel, meals and entertainment expenses. They are: Adequate Records, including summary of expenses, and Documentary Evidence such as actual receipts or paid invoices.
Tax Tip #56: Not all Meals and Entertainment are subject to the 50% exclusion: You can deduct 100% of meals and entertainment if:
It’s a minor employee fringe benefit, like a holiday turkey.
The cost is paid to an employee and included in their W-2 income. It is a promotional dinner open to the general public or a social/recreational event hosted by an employer.
Tax Tip #57: Termination/Election of S Corporation Status: The IRS now has authorization to waive inadvertent terminations and to treat late S corporation elections as timely. This could save you thousands in taxes if timed with large business profits.
Tax Tip #58: Retirement Plans: There are numerous qualified and non-qualified retirement plans that can offer a small business owner a huge tax savings. From 419 plans to SEP IRAs, these plans can be set-up by a certified financial planner to meet the needs of the business and the owner. If you are a small-business owner, please contact NADN and one of our certified financial planners will be happy to assist you.
Tax Tip #59: Home Dinner Parties can be Deductible as Business Dinners. The Tax Court considers these as reasonable so long as they are held once a month, preferably immediately after work, and the cost on non-business entertaining is excluded.
Tax Tip #60: Home Office Liberalization: Congress has liberalized the definition of a home office for purposes of claiming the deduction. The new definition of “principle place of business” includes:
A) An office used to conduct administrative or management activities of the taxpayer’s trade or business; and
There is no other fixed location of the trade or business where the taxpayer conducts substantial administrative or management activities.
In other words, if you make your living painting houses, the IRS previously held that you couldn’t claim your office in home deduction because your principle place of business was the job site. Now you can!
Tax Tip #61: Transportation Workers, Meal Allowance: Workers who are subject to Department of Transportation “hours of service” limitations will now be allowed to deduct 65% of their meals.
Tax Tip #62: Business Travel, “Temporary vs. Indefinite”: If you have a new work assignment and it lasts less than one year, it is a temporary assignment. Transportation, lodging, meals and incidental expenses are deductible. If the assignment is reasonably expected to last more than one year, the expenses are not deductible.
Tax Tip #63: Tax Home for Military Personnel: The military tax home is always the permanent duty station. Travel away from home, the base or ship, is deductible, even if it is to your home.
Tax Tip #64: Office in The Home: Little things really can add up. You can deduct with your home office a percentage of mortgage insurance, utilities and home repairs.
Tax Tip #65: Dependent Care Credit: This credit is allowed for a portion of the cost of caring for a dependent child under age 13, your spouse if he or she is either mentally or physically incapable of caring for themselves, or any other qualified dependent (for example an elderly parent) who is either mentally or physically incapable of caring for themselves.
Tax Tip #66: Child Credit: A new child credit of $1000 per qualifying child under 17 years of age. This credit is subject to certain restrictions for families with more than three children and adjusted gross income in excess of $100,000.
Tax Tip #67: Lifetime Learning Credit: Individuals may be able to receive a tax credit of up to $1200 per year for post-secondary expenses at the graduate or undergraduate levels. It allows a credit calculated as 20% of qualifying tuition, up to $10,000, to be taken against taxes due.
Tax Tip #68: Hope Scholarship: Available to families is a non-refundable tax credit of up to $1,500 per student per year for qualifying post-secondary tuition and fees in the first two years following high school. This is available to the taxpayer as long as the student is at least a half-time student. Beginning in 2002, these credits can be taken in the same year
Tax Tip #69: Other Education Assistance: In case you are not eligible for either of the previous education credits, there is a new above-the-line deduction for up to $3000 in qualified educational expenses available for taxpayers in 2002. This cannot be used in combination with any other education credit and it is subject to phase-out albeit at a higher income level than the credits.
Tax Tip #70: Excess Social Security Tax: If you work for two or more employees during the tax year, too much social security tax may be withheld from your wages. You may claim this excess amount as additional withholding against your income tax.
Tax Tip #71: Earned Income Credit Rules Eased: Generally, a taxpayer is not eligible for Earned income credits if their tax return has more than $2,350 in investment income. Under the new rules, capital gain from the sale of business assets is not counted in calculating the $2,350, making more people eligible for the Earned Income Credits.
Now let’s get into some actual tax planning.
First, for businesses:
Tax Tip #72: Hire family members. Older family members can warrant higher salaries deductible by the business owner. Younger family members can be taxed at lower rates than the business owner. Children under 18 are exempt from social security taxes and would pay no income tax on earned income up to the standard deduction of $4700.
Tax Tip #73: Be Sure to Hire Your Spouse: If a spouse is an employee of the business, fully deductible medical insurance premiums can be offered as an employee fringe benefit.
Tax Tip #74: Deduct the Costs of Your Hobby: Take a business-like approach to your hobby and convert it into a business. Early-year losses will be deductible.
Tax Tip #75: Retire in Style: Take advantage of the higher-contribution retirement plans available to self-employed people, up to $35,000 for certain Keogh Plans versus a $3,000 IRA.
Tax Tip #76: Hire Independent Contractors: Whenever possible, treat non-family workers as independent contractors, this can dramatically keep your payroll tax costs down.
Tax Tip #77: The Work Opportunity Credit has been extended for an additional 24 months. Now employers can claim this credit if they hire individuals from eight targeted groups having particularly high unemployment rates or other special employment needs before December 31, 2003.
Tax Tip #78: Why to Incorporate, Reason 1: As business income rises, consider converting to an S Corporation to reduce self-employment taxes.
Tax Tip #79: Why to Incorporate, Reason 2: As business income rises, consider converting to a C Corporation to take additional fringe benefits.
Tax Tip #80: If you own or operate a business in the New York Liberty Zone, you are eligible for special tax benefits. This Zone is defined as the area on or south of Canal Street, East Broadway, or Grand Street in the Borough of Manhattan in New York City. Contact NADN for specialized assistance if your business is in this Zone.
Now, Tax Planning for Families:
Tax Tip #81: Getting Married. That’s right, even deciding when you tie that knot will make a difference in your taxes. Postpone a Christmas wedding until after the first of the year and the tax savings could help pay for the honeymoon. There is a marriage penalty if both married partners work. For example, in 2001, two single individuals who each earned $24,000 in taxable income – for a total of $48,000 in taxable income - would have paid $3604 each in taxes for a total outlay $7208. However, as a married couple filing jointly, their taxable income would have been $49,500. They would have been required to pay $7969 in taxes - $761 more than what they would have had to pay had they remained single.
Tax Tip #82: Separated Spouses: If you have lived apart all year, you do not have to file a joint tax return.
Tax Tip #83: Divorce-Joint Liability: Couples who file jointly are each individually and jointly responsible for any tax, interest or penalty on that return. This is true even if your divorce decree states that one spouse is responsible for paying the tax. The IRS is not required to, nor does it, honor the terms of a divorce decree allocating past due taxes to
one of the spouses. Consider filing separate tax returns if you are considering divorcing.
Tax Tip #84: Five Tax-Wise Ways to Help a Child Buy a Home.
Give child down payment: Make sure the gift of the down payment is less than the annual limitations so there is no gift tax. If the child is married, each parent can give $11,000 to their child and another $11,000 to the child’s spouse for a total of $44,000 each year.
Lend child money to “buy down” mortgage investment rate: An advance deposit with the mortgage lender may qualify the child for a lower interest rate which can make the difference between getting the loan or not. Buy the home and rent it to child with an option to buy: The parent can deduct cash expenses and depreciation. The parent should charge the fair market rental value for the home. Child buys home, but borrows down payment from parent: Parent needs not charge any interest on a loan less than $10,000.
Enter into an equity sharing arrangement with child: Parent and child each contribute part of the down payment and take title as co-owners.
Tax Tip #85: Sale of Parents’ home to Children – then parents rent it back. In this scenario, the advantages to the parents are as follows:
There is no tax on proceeds if the gain is under $500,000.
There is an immediate lump sum of cash.
The removal of substantial asset from the estate, and they don’t have to move!
The advantages to the children are in the rental income that becomes available to make mortgage payments, there is also a Net rental loss deduction on child’s 1040, and they acquire a substantial asset and avoid estate taxes on future appreciation.
Tax Tip # 86: Kiddie Tax: A parent may elect to include the unearned income of certain children under the age of 14 on the parent's return. A new 10% rate will be applied to the tax for the 2002 return. This represents a drop from the 15% rate in prior years.
Now we move on to Estates and Trusts:
Tax Tip #87: Inherited Property. The holding period for inherited property is always considered to be long-term regardless of the actual holding period. Thus all sales of inherited capital gain property are taxed at the applicable maximum long-term capital gain tax rate.
Tax Tip #88: Capital Losses of Estates or Trusts. If capital losses of an estate or trust exceed capital gains, then all losses are allocated to the fiduciary and can be deducted against ordinary income.
Tax Tip #89: Benefit of Living Trusts: Form a living trust to preserve the unified gift and estate tax credit for both spouses. Without it, the $1,000,000 estate tax exclusion of the first to die can be lost.
Tax Tip #90: Estate and Gift Tax: Certain qualified family businesses and farms are allowed a new exclusion which, when combined with the unified credit exemption of $675,000 allows up to $1.35 million in qualified business interest to pass to family members without estate tax.
Tax Tip #91: Universal Life Insurance plans: A universal life insurance policy offers tax-free accrual of interest income at current market rates. Upon death of the insured, the lump sum passes to the beneficiary as a tax-free distribution.
Our last 11 tax tips are items that each
and every taxpayer should take careful note of.
Tax Tip #92: Taxpayer Interviews by IRS: An officer or employee of the IRS may not require a taxpayer to accompany his or her authorized representative to an interview unless an administrative summons was issued to the taxpayer. What this means is the IRS cannot require you to appear before them if you have an authorized representative.
Tax Tip #93: Exceptions to Early Withdrawal Penalties on IRAs Before age 59 1/2: You can avoid the 10% early withdrawal penalty on that portion of the distribution that you use by paying for any of the following:-
Certain medical expenses.
Health insurance premiums for certain unemployed individuals
Qualified higher education expenses.
Or by paying up to $10,000 for a first-time home purchase.
Tax Tip #94: Bad Math: According to the Internal Revenue Service, errors in addition and subtraction are the No. 1 mistake taxpayers make. Check the figures on the IRS correction notice. They have been known to make their own mistakes. Arithmetic mistakes alone rarely lead to a full-blown audit.
Tax Tip #95: Credit or deduction: When you can choose between taking a tax credit or an additional deduction, compare the credit rate to your marginal tax rate to decide which provides the greater benefit.
Tax Tip #96: Maintenance of Records: In the real world you either have proof of your deductions or you lose them. Always keep your receipts and checks if you want to deduct them. Deductible receipts and checks should always be kept for at least three years from the due date of the year filed, or the actual dated filed, if later.
Tax Tip #97: Incorporate Your Business Today!: Did you know that at just about every level of income a small corporation will pay less tax than what you and I pay as individuals? You can literally earn $50,000 corporately and only pay 15% in tax.
Tax Tip #98: 70% Dividend Exclusion Rule: Corporations get to exclude 70% of their income from taxes on all income they earn as dividends.
Tax Tip #99: 50% Payroll Tax Expense: Corporations and non-incorporated self-employed individuals get to deduct as an expense one half of the Social Security taxes that are paid to the IRS. This is not the case with self-employment taxes paid by the non-incorporated self-employed individual.
Tax Tip #100: 100% Medical Insurance: 100% of the premium costs of medical and other related type plans like dental insurance are deductible expenses to a corporation.
And last but not least,
Tax Tip #101: Cafeteria Plans: Corporations can establish cafeteria plans which allow employees the chance to write off such expenses as Day Care, Costs, Long Term Care Insurance, and Educational Expenses. While this can get expensive for a business (NOTE: what is offered to one employee, must be offered to all), but small businesses who incorporate have found Cafeteria Plans offer them an edge when competing for talented employees.