- By Court Tuttle
- Published 02/11/2008
- Rating: Unrated
It’s true, you can lower your taxable income, you just have to know how to do it the most effective way. You might be thinking that you will simply work less house next year, but there are easy ways to keep your income the same and lower your taxable income. The answer is through itemized deductions. Now, if you are not big into taxes and how they work, you are probably saying, “through what?” and that’s okay. Everything will be explained, even for the least tax-savvy person. Before we talk about expenses that are tax deductible, let’s figure out why we want to collect this information for our accountant. When you file you taxes, you will either owe additional taxes or you will qualify for a tax refund, determined by the government’s standards and ratios of how many taxes you paid in comparison to your taxable income. Your taxable income is any income that can be taxed. When you itemize your deductions, you are lowering the amount that is taxable income. Thus you will either end up paying fewer taxes than you would have, or you will receive a bigger refund from Uncle Sam. There are many different categories to itemizing tax deductions. You might start with medical and dental bills. Even if you have insurance there are usually other costs to keeping your family health.
You can count any prescriptions that insurance doesn’t cover, along with dental work, and even e
yeglasses and contact lenses. If there is someone in your household with special needs, you can count any expenses that cost to help them, including that new ramp you had installed for your son’s wheelchair. Now, there is a guideline with counting medical expenses as tax deductions, but if you gather up your bills and receipts you will most likely surpass that number and be able to count all of these medical costs and tax deductible. Don’t ever forget to count your mortgage interest as tax deductible. If you are a newer home owner, you are probably paying more in interest than you are in principal toward your mortgage loan. This amount that you paid in interest can be taken away from your total taxable income. You should receive a tax document from your mortgage lender that you can give to your accountant to add to your tax deductions. Besides medical bills and mortgage interest, you can also subtract any charitable contributions. When you donate money, be sure to get a receipt for that contribution and count them as a tax deduction as well. Now, you’re starting to see how it works. The more you have paid in mortgage interest, medical expenses, charitable donations, and the bigger tax break you will get. Makes sense doesn’t it?
If you have a small business, you will need to keep tract of mileage and all business expenses from new office furniture to the bill for the internet connection. Your accountant can help you find other tax deductions to help you get a better tax return.