7 Tax Loopholes for the Working Man and Woman (Lesser Known Tax Deductions)
I get to see my tax professional this week and I can’t say I’m looking forward to it. I actually enjoyed doing my taxes as a younger fella – but things have gotten a tad more complicated with our finances. This year, I’m just looking for any tax shelter or deduction we can qualify for to lessen our tax burden.
Should you do your own taxes?
We’ve all heard about how the wealthier folk (as well as corporations) that are able to take advantage of certain lesser-known tax laws (or loopholes). But, how about for you and me? Do they exist and how can we use them to our benefit this tax season?
I have come to realize that having a professional do my taxes is probably the smart way to go – for us. Depending on your situation – it may be for you too. There are some real benefits to having a professional do your taxes:
- Are able to probe deeper into your financial picture than software programs can
- Many have years of experience they can use to your advantage
- Can teach you about certain tax rules and prepare you for the following year
Consider this stat from MSN Money: “Taxpayers spend more than 7.6 billion hours and more than $193 billion each year complying with the Tax Code – and that’s just to figure out what we owe.” This is crazy! To me – this begs for a change in the tax code. I’m all for paying my fair share – but the amount of money that is spent to figure out what we owe the government – is ludicrous. If you’re situation is a bit complex (like ours is) I still believe that you can take your taxes to 10 different preparers and come up with 10 different results. There’s something wrong with that kind of system.
What are some tax deductions I can take advantage of?
That said – what can you do? I just want to share a few tax “loopholes” that I’ve actually used to offset my taxes in years prior and some that I found while doing research for this. I hope they help – and would love to hear about any that you have found which you have benefited from.
- IRA Contributions. A few years ago, I had a good friend of mine (who happened to be an accountant experienced in tax prep) help me with my taxes. He told me that if I contributed $$ to a traditional IRA, I could deduct that against my taxable income. So, if you are going to be owing the government – you might as well offset that with a contribution to your retirement plan. Better you than to “The Man”, right? Note the deduction is only good on a traditional IRA and you can make this contribution up to tax day.
- Tax Prep Fees. That’s right – if you folk over $75 or $275 to figure your taxes out – you can take that as a deduction on your return. Maybe we can all get some of that $193 billion back this way?
- Unreimbursed Business or Work-related Expenses. Items for this deduction could be related to your purchasing supplies needed to do your job or work outfit, laundry away from home, phone calls, faxes, and travel. All things that your employer did not cover while you were working for them. See Form 2106 for more information.
- Personal Expenses Incurred While Volunteering. I’m all for doing good things for the “intrinsic value” – and nothing more. But when it comes to tax time – and you are looking to lessen your burden – there are rules that allow you to take more than the intrinsic reward. If you keep track of your driving mileage to and from your volunteering location – you can deduct this (the IRS allows so much per mile). You can also deduct any expenses you incurred on behalf of the organization. Say you bought some office supplies for them or cleaned some of their uniforms out-of-pocket. All deductible.
- Medical Expenses on Your State Taxes. According to the Tax Goddess, “At the federal level you have to beat that 7.5 percent limit to be able to deduct it, but not at the state level..there is no limit at the state level so even your $10 copay to your doctor once a year can be a deduction for you.”
- Jury Duty Pay. If you got paid for jury duty during the past year – you will have to consider it taxable income. However, if you had to give your employer that pay because you were still receiving a salary while you were away – you can deduct that amount on your taxes. Weird huh?
- Savers Credit. If you are married and income below about $58,000 in 2012, you can qualify for an additional deduction in putting money towards a qualifying retirement plan up to about $1,000 or $2,000. This is in addition to the IRA contribution credit. You’ll have to check in with your tax pro or this IRA release to get more specifics.
Any other tax deductions many don’t know about?
Also – be sure to check with your tax professional to verify if you qualify for the proceeding. Some only go into affect after you’ve met certain requirements or are itemizing deductions.