Tax relief is a great way to spend less money on taxes. By being prepared, you can use the system in your favor and get several discounts or credits. Unfortunately, the tax relief system is very complex, so you need to be prepared in order to make the most of it. Here are some tips that may help you.
Start Doing Your Taxes As Soon As Possible
Doing your taxes without enough time is one of the most common rookie mistakes people make. To get your tax relief right, you will need time to prove that you deserve tax relief. You may need several documents to prove what you are claiming.
Looking for these documents when you only have days left is a bad idea. You may be surprised by how often people are not able to provide documents because they just threw them away or can’t find them on time. The first step is to keep them in a separate space during the year if you can.
Tax Laws Change A Lot From State To State
When paying taxes, it is important to know exactly what rules to follow. Federal taxes are the same across the country, but each state also has its own tax laws, too. When moving to another state, this can become an issue. You can’t simply hope that state laws will be the same. You need to check them and determine if there are any relevant changes. If you want to get discounts, you need to follow the rules. Knowing what changes and what can be itemized is the right way to be sure that you will get tax relief.
Tax Relief Is Not Always The Same, Tax Credits Are Different From Tax Deductions
There is more than one kind of tax relief. Many people believe that tax credits are the same as tax deductions. This far from the truth. Deductions will reduce the base income on which you pay your taxes while tax credits are used to deduct the final amount of money that you need to pay.
Understanding this is important to pay fewer taxes. While sometimes you can get more benefits with a tax deduction, tax credits can grant you better results in other situations. You should also notice that while some tax credits are given automatically, some of them need to be requested first.
You Can Deduct Some Education Costs, Including Student Loans
If you are still in school, you can claim some tax credit for your educational expenses. There are two programs that can give your taxes back: the American Opportunity Credit and the Lifetime Learning Credit. The credit is relative to the expenses of the previous year.
Student loans can also be used to get a break on your taxes. Up to $2,500 per year is deductible from loans. The interest on students loans can also be deducted, but only if you earned less than $65,000 this year. In this case, both the loan and the interest need to be filed separately.
Always Keep Receipts To Deduct Medical Expenses
The federal law states that Americans can deduct any medical costs if they are over 10% of their adjusted gross income (AGI). For example, if someone’s AGI is $50,000, this person can deduct any medical expense over $5,000. If you spent less than 10% of your AGI on healthcare, you won’t be able to do it, though.
If you are eligible for this discount, the next step is to prove it to the government. This is when people often make their major mistake. They often forget is that they have to keep the receipts to prove that these medical expenses existed. In many cases, you will not be able to get a copy of these documents after a year has passed, so be careful not to throw them away.
You Can Deduct Expenses Related To Job Searches
You can get tax relief for declaring expenses related to searching for jobs. The IRS allows people to do so in order to lessen the blow of losing their current job. Unfortunately, there are very strict rules for this benefit. Driving to an employment interview, hiring someone to prepare a resume or speaking on the phone can be considered examples of job-hunting expenses.
You should also be aware that the law only applies if you are looking for a job in the same profession. People looking for their first jobs can’t use this benefit. It is also important to know you need to be looking for the job as soon as you were fired. If you wait months before doing it, your request will be denied. These expenses are considered “miscellaneous itemized deductions” and cannot be more than 2% of your adjusted gross income.
Donations To Charity Can Be Deducted
If you have donated to charity, you can get some deductions on your taxes, according to the IRS. The list of organizations that can be considered charities is big. It includes churches, veteran organizations, domestic fraternal societies, nonprofit cemeteries, civil defense organizations and more.
If you have donated an item instead of money, you can still get a discount. Any non-cash item can be described and discounted for its “fair market value”.
You should also remember that donations to foreign organizations are not deductible. Donations to American organizations with foreign addresses are fine, though. Donations to some Canadian organizations may be allowed, but you will have to check them individually.
Hiring a Professional Can Be A Great Idea
You have probably already noticed that tax relief is a complex subject, right? To some people, dealing with all of this can be very overwhelming. In this case, a professional can help you to get the best results.
A professional accountant has done this whole process for several years, so he or she will know all the best ways to save money. You will spend money hiring the professional, but you may save a lot more on tax relief this way.