The year 2016 comes to an end. It is time to think about your taxes and getting your paperwork together. You hope for a refund, but fear that you may have to pay the IRS a tax bill. You wish that you could have a second chance to be better prepared. You may think that it is too late to reduce your tax bill because the year is over. You will even read on some internet sites that it is too late to reduce your tax bill, and the best advice they can give you is for you to do better next year.
Fortunately, these nay-sayers are wrong. There are several options for you to use to reduce your tax bill. Also, there are deductions and credits that you and a lot of people may not be aware of their existence or their applications. Credits or deductions, which should you choose? This is always a daunting question, but keep this in mind. A credit reduces your tax bill dollar for dollar. It is generally considered more valuable than a deduction. A deduction cuts how much of your income is taxable.
After you have all of your income sources, you know the amount of your yearly income. Now, you need to check bank statements, receipts, and credit card statements for items that can be useful in reducing the taxes on your income. Now, you need to familiarize yourself with some of the most overlooked deductions and strategies that you can use to reduce your tax bill. Even though you are reading this in 2017, there are several last minute ways to cut your tax bill.
1. Volunteer Expenses
Time itself is not a deduction, but you can claim any vehicle mileage driven for volunteer activities. You can deduct $0.14 per mile. You can also claim any expenses that were not reimbursed. Since documentation is needed for deductions, make a list or spreadsheet of as many volunteer activities per month that you can remember. Now, calculate your round trip mileage from the location of the each activity and any expenses that are associated with the volunteer activities Expenses include any special uniforms you had to wear, ingredients for cooked or baked items, postage, and promotional materials.
2. Medical Expenses
Deduct your medical expenses if they exceed 10% of your adjusted gross income. In addition to expenses from exams, tests, or therapies, include medical mileage from round trips to doctors or to the pharmacy to fill prescriptions. Also, any tolls while traveling to a doctor are deductible. Do not forget to include any insurance co-pays.
3. Tax Deferred Contributions After December 31, 2016
Most people know that money is deposited in a cash deferred account is not taxable, and it reduces your taxes. What is surprising is that you can even defer your contributions to a tax deferred savings account until April 15, 2017. This is something that you can do right now, and it still counts toward your 2016 taxes. It is best to make this contribution before you file your taxes. If you claim the deduction, but you are unable to make the tax deferred contributions, you certainly need to file an amended tax return by April 15, 2017, to avoid penalties and interest.
4. Check Your Health Insurance Coverage
If you are covered by a high-deductible health plan, you may qualify for a Health Savings Account (HSA). You can contribute up to $3,350 ($6,750 for a family) to the plan. All of your contribution is tax-deductible.
5. New Jobs and Job Hunting Expenses
If you had to move more than 50 miles for a new job or to start your career. you can deduct the cost of moving expenses; such as, U- Haul rentals, hotels, and gas cards. Even if you have been in the workforce for decades, you can use job-search expenses such as coaching, resume services, and travel costs (food, hotels, transportation expenses) for deductions, even if you do not get the job.
6. Saving for Retirement
If you are saving for retirement, then you have another option. It is the Saver’s Credit. Statistics indicate that only one in four eligible taxpayers take this credit. This is one of the only places the IRS lets you “double dip”. Contributions to retirement accounts are pre-tax, but you can also get a credit of up to $1,000 ($2,000 for married couples filing jointly) if you contribute to an IRA, 401(k) or another similar retirement savings account. You need to meet specific income thresholds of $30,500 for single filers or $60,000 for married couples filing jointly.
7. Property Losses
While insurance typically covers most losses, it may not cover everything. If you are unfortunate to suffer from an uninsured loss or damage to your property or if your insurance doesn’t cover everything, you could be eligible for the Casualty Deduction for your out-of-pocket expenses. This includes theft losses, damage losses to your home, household items, and automobiles. You may not receive a 100% reimbursement, but you can at least deduct a portion of those out-of-pocket costs from your taxable income.
8. Home Office Deductions
More and more people are working from home. It may be running a small business as their primary work or a secondary source of income such as selling products online. If this is your situation, you can probably get some tax benefits if you use a portion of your home exclusively for conducting business. If you are a homeowner, you could possibly get a bigger tax break because maintenance and repairs done to the home could be a deduction from the income of your small business. This typically applies to repairs or maintenance done to the entire home, such as exterior painting, a new roof, or other home repairs. You most certainly would be able to deduct the full amount of repairs or maintenance done exclusively to the area of your home that you use for conducting business.
9. Educational Credits and Deductions
The tax code offers several tax breaks for parents and students. They include the American Opportunity Tax Credit, the Lifetime Learning Credit, and the tuition and fees deduction. All of these have income cut-offs, and you can not claim more than one tax break per student per year. The American Opportunity Credit, which can be worth as much as $2,500, is the most valuable educational tax break. It is a good idea to let this be your first choice.
Even employed adults who are no longer in college can save. If you took a class that gave you new job skills, you may qualify for the Lifetime Learning Credit. It is worth up to $2,000.
If you are paying off student loans, there is one more tax break. It is the Student Loan Interest Deduction. Based on your income, you may be able to write off as much as $2,500 in interest, even if you take the standard deduction.
10. Hobby Expenses
This is a surprising deduction that is often overlooked. You can deduct necessary expenses from your hobby. A hobby is specifically not meant to make a profit. Even tax codes allow for a little fun.
Now, you know several strategies that you can use to successfully lower your tax bill, even after December 31. You just need to relax and reflect on 2016. This helps you to focus on finding new and little known ways to lower your tax bill. When in doubt, contact the IRS or a tax professional.