Every year you sit down to go through your taxes dreading the
outcome. Will you get money back or have to pay? Just filling
out the forms can be confusing and tiresome but it is required
for all Americans. Although it won't make the forms less
challenging, one way to lower your tax bill is to lower your
taxable income which is calculated by removing (a) excluded
income, (b) exemptions, and (c) permissible deductions from the
individual's gross income.
Understanding what deductions you can take on your taxes can
help to lower your taxable income. Many people do not understand
the basics rules of these laws and this can cost you money. It
may be in your best interest to hire a tax expert to do your
taxes - it could be money well spent!
Some common exemptions which are excluded from gross income
include: - Earnings made from life insurance contracts -
Earnings made from gifts and inheritances - Proceeds granted for
personal injuries - Interest received from state and municipal
bonds Of course nothing in the tax law is cut and dried and all
these exemptions are subject to certain conditions. If you do
want to avail yourself of these exemptions a tax advisor can
help you with the specifics.
The standard deduction on your taxes is a certain amount of
money you get to deduct from your taxable income provided you
have no itemized deductions. This amount varies depending on
your classification. You may be classified as single, head of
household, married filing joint return, widow(er) with dependant
child, married filing separate return,
Some other deductions you may be able to take include: - Trade/
Business expenses - Alimony - IRA contributions - Net capital
losses - Expenses incurred due to property used for income
generation Again, you will want to check with your tax advisor
if you are taking the standard deduction as well as some of the
deductions above as there may be some rules as to how much or if
you can take both.
If you own a home or had certain loses or medical expenses you
will probably want to itemize your deductions. Itemized
deductions usually include: - Interest paid on mortgages -
Property tax - Employee transference expenses - State and Local
income tax - Taxes paid - Losses incurred - Charitable
contributions - Medical costs Some deductions such as the
medical costs are only allowed if they surpass 2% of your
adjusted gross income so be sure to read the instructions
carefully when filling out the form for these.
Anyone who has sat in front of a tax form knows how difficult
these are to understand and fill out. There are many software
programs that can help you with this daunting task and even some
that you can use right online which will file electronically for
you. If you don't want to use software, consider using a tax
professional especially if your taxes are complicated
About the author:
Lee Dobbins writes for
For Your Wealth where
you can find out more about your money and wealth. Visit their
article archive for more articles on
taxes
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