Legitimate Ways to Save On Your Taxes

by on September 1, 2010

No matter what, a financial decision will always have a fraction of tax glued to it, and you might not like it, but the truth is that you also cannot avoid it.

Tax will greedily pave its way into your pockets, given that you mismanage your taxes, your dooms day will hover around your head. But this does not mean that there are no ways to find a solution to the placed labyrinth of taxes. Saving money on taxes can be as simple as filing your own taxes using some of the great online software available from companies like Turbo Tax and H&R Block. Turbo Tax even has a new Taxcaster tool that will help you estimate your taxes.

Here are other useful ways that will help you save that hard earned penny, section by section.

Education:

  1. You should always be opting withdrawing penalty-free from the traditional IRA, so as to shell out and bear costs in regards to higher education, concerning your own studies, kids or grandchildren. Tax will be levied on withdrawals at regular income rate; however, no early withdrawal penalty will also be applicable.
  2. Keeping a track of the money you spend on books and equipments is advisable when in school. When you start your career, you might be able to depreciate those items that are used for you career.

Career:

  1. You should start investing in stocks, plans, schemes, and many other tax benefits accounts as early as possible.
  2. Learning about the fringe benefits that your firm offers is a smart move. Big firms usually offer counseling, tuition assistance plans, commuting assistance and many other tax-free benefits, of which you take advantage.
  3. Try to pay for your own disability premium amount. Given that a person is disabled, his disability benefits will not be taxed.

Going the family way:

  1. Secure money in your employer’s dependent care plan. Even though tax-free recompense by the boss helps reduce the child and dependent care credit, but they yet appear to be good deal for those taxpayers, who fall in the 20% tax slab and over.
  2. You are eligible to claim the child tax credit. If your income falls under the slab that is lower than $75,000, you can claim a sum worth $1,000 for any child, stepchild, or foster child that is under your guidance.

Divorce:

  1. If filing for divorce, look for a copy of all business tax returns for your partner’s enterprise. The IRS would not offer copies of your mate’s business returns if your signatures are not there.
  2. If ever in doubt, consider filing a separate return. This will make sure that you are not taken accountable for any wrong action, if your spouse involves in any.
  3. The easiest way to follow is 5Ds for alimony deductibility. If a deduction for alimony is desired, it must be recompensed in dollars that is under a decree or signed accord, and stopped if your ex dies.
  4. After you have divorced your ex, it is apt to maintain distance with the ex- partner and the payments cannot be designated as child support or non-taxable.

Investing and Home ownership:

  1. Do not go in for tax evasion plans or schemes like secret overseas bank accounts. There definitely are better and legal ways to lessen the burden of income tax.
  2. Property tax and mortgage interest will help you save taxes.

Following any of these ways according to your needs will save time, money, efforts and most importantly, harassment.

(photo credit: Getty Images)

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