If you have filed taxes before, you know that it is not an easy process. Tax season is one big headache for some people.
With the possibility of being audited by the government, it is that much more important to make sure you file your taxes exactly correct. This can cause a great deal of unnecessary stress, and make your spring very unpleasant.
However, it doesn't have to be. If you follow the advice and wisdom of others, you can save yourself from learning things the hard way.
Here are some helpful tips to get you through to April 15th without having a nervous breakdown. The first tip is to maximize your 401(k) deductions.
These deductions will lower your taxable income, and all earnings are tax-deferred until distributions are received after your retirement. If your employer offers a matching contribution, you will have a tax-deferred return on the investment, as well as a reduction of your wages with your W-2.
The money in your 401(k) account is protected by law against creditors, so if you ever had to file bankruptcy for any reason, your money will be safe. Be aware that IRAs do not have this same protection.
Next, convert your non-deductible interest expenses such as interest on credit cards and car loans into deductible home mortgage interest. The interest on your home equity loan is deductible no matter how you used the loan money.
However, if your home equity loan is over 0,000, the deductible interest expense is limited to the interest on the first 0,000 of your loan. Just conduct your own research to see if this would make sense for you to do.
Donate stock instead of cash to your favorite charity. If you have publicly traded stock that has appreciated in value, you can get a charitable deduction for the full value of the donation, without having to pay any capital gain tax.
This only works, however, if you give the stock directly to the charity. Don't try to sell your stock and give the money to charity.
Another rule to note, is that you are allowed to deduct mortgage interest on your primary residence, and one other residence. This means that you could legitimately deduct the loan interest on your RV, camper, or ever your boat.
Your boat or RV can qualify as a resistance as long as they have cooking, sleeping, and toilet facilities. This is a great way to save a few dollars!
If you are getting a divorce, timing the finalization can save you on taxes. If both you and your spouse earn about the same amount of money, getting a divorce before the year ends will save taxes by eliminating the marriage penalty.
If one spouse earns more than the other, waiting until January will save taxes by taking advantage of the marriage bonus for one last year. As long as you are going through the divorce anyways, you may as well benefit from it, right?
Try to invest in growth stocks and growth mutual funds. You will keep your money invested in the market instead of having to use part to pay taxes, if you limit the number of times you sell and reinvest.
Pay careful attention to making sure that your tax return numbers match the 1099s you receive from your broker, employer, or your investment company.
If you are starting your own personal business, an LLC may be the right choice for you. LLCs offer the advantages of limited liability and partnership taxation.
There are many benefits to choosing to operate your business as a C corporation, S corporation, or sole proprietorship, but LLCs are often the best choice. This only applies if you are starting your own business, though.
Lastly, there is a tax advantage to participating in qualified state tuition programs. There are great programs for high-income tax payers and people who want to invest large amount of money for their child or grandchild's education.
State such as New Hampshire and Utah allow residents and nonresidents alive to participate in their program and attend college anywhere in the United States. This will allow you to receive tax benefits even from out of state, while allowing your child or grandchild to attend college in whatever state they want.
As you can see, with a little internet research, there are many ways to find your way through tax season with minimal damage. All you need is a little advice and some creativity.