No need to dread tax time. Instead make it your business to understand tax laws and take as many deductions as you can. "At the end of the day it's not how much money you make, it's how much you keep," says Deborah Owens, author of Nickel & Dime Your Way to Wealth (Unlimited Publishing). Consider these eight deductions and strategies that can lower taxable income and raise your refund.
MAKE WELLNESS PAY.
Taking good care of yourself may help lower your tax liability, says Julie Miller, spokesperson for professional tax software, If your yearly health and medical expenses exceed 7 1/2 percent of your adjusted gross income (AGI), you may deduct the amount that exceeds that threshold. For example, say your AGI was $20,000: 7 1/2 percent is $1,500. So if you paid out $1,845 in unreimbursed medical expenses, you can deduct $345. Deductible health and medical expenses include smoking-cessation programs and doctor-prescribed weight-loss regimens. And the cost of any prescription drugs you pay for out of pocket, including contraceptives, count toward that 7 1/2 percent limit.
MAXIMIZE PART-TIME INCOME.
Do you sell Mary Kay on the side, or have you dabbled in some other part-time business? Office expenses associated with your side gig--including a portion of your rent if you have a home office--can add up and bring down your tax liability, says Cheryl D. Broussard, author of The Black Woman's Guide to Financial Independence: Smart Ways to Take Charge of Your Money, Build Wealth, and Achieve Financial Security (Penguin). "When you have a part-time business, the little things that you spend money on every day (office supplies, envelopes, stamps and so on) are deductible expenses," Broussard says.
MAKE A LAST-MINUTE RETIREMENT CONTRIBUTION.
If you are self-employed, you can put money away in a Simplified Employee Pension (SEP) account for the previous year up until the deadline for online income tax filling. The more money you can put into a tax-deferred retirement account, the less money you're taxed on today. Even if you have a full-time job, you can take advantage of this if you have a part-time business on the side. "As long as you have self-employed income, you can open an SEP account, and in some cases, you can put up to 25 percent of your net earned income in it," says Owens.
ADD UNREIMBURSED JOB EXPENSES.
If you spent money while working that was not reimbursed, you may deduct it if it was an "ordinary and necessary expense" for fulfilling your job. The IRS considers an expense to be ordinary if it is commonly accepted in your line of business. For example, teachers often spend their own money for classroom supplies. Elementary- and secondary-school educators can deduct up to $250 for those expenses as an adjustment to income, says Tamara Walker Smith, director of accounting and online tax preperation services for Henderson Financial Associates, Inc., in
DEDUCT FOR YOUR JOB SEARCH.
If you spent time and money looking for employment last year, you can deduct the expense incurred as long as the job you were seeking was in your current line of work. "Phone calls to potential employers, help in getting your resume together, travel costs for interviews would all be deductible," says Miller. And don't worry if your efforts did not prove successful. "Just because you don't get a job offer does not mean you're not looking; those expenses are deductible," she says.
INCLUDE EDUCATION COSTS.
If you took classes related to your line of work, you may qualify for a deduction. According to the IRS, you can deduct education expenses if the instruction maintains or improves skills you need in your current job or if you are required by your employer or the law to get additional training to maintain your current salary or job. Classes related to a hobby or those you take in preparation for a career change are not deductible.
DEDUCT CHARITABLE SERVICE.
You probably know you can deduct cash donations or items such as clothing given to charities, but did you know that your service may also be deductible? "What many people overlook is the out-of-pocket money they spend in doing charitable work," says Miller. That means if you deliver meals to the elderly or you're a scout leader, you can deduct mileage and expenses related to your service activities. And if you attend a conference being held by a charitable organization, you can also deduct those travel expenses.
SUBTRACT TAX-PREPARATION COSTS.
Money you spend to prepare your online tax return is deductible. That means this year you can deduct the money you spent last year buying tax software or consulting a tax accountant. And keep in mind that patience pays: If you don't need Uncle Sam to return your money immediately, avoid using rapid-refund services because they have costs associated with them, says Smith. "This is a loan from a lending institution that charges you interest and fees," she points out. "If it's not an emergency, file electronically. You should receive your money back in a few weeks."
Labels: Get Bigger Income Tax Refund
