Taxes may place a financial burden or strain on someone with a tight budget. Money paid out in taxes means fewer funds may be directed towards savings or pay outstanding bills. Regardless of the inconvenience, tax obligations due need to be paid. Thankfully, you only have to pay what you owe. The mistake people make is they end up paying more than they owe. Like many others, they fail to maximize their potential refund or lower the amount due.
The IRA Example
Certain steps to reduce tax debt are not exactly complicated. Taking legitimate, provable deductions remains perfectly acceptable. One deduction available to taxpayers would be an individual retirement account (IRA) deduction. Taxpayers can deduct up to a maximum amount of $5,500 provided they are under age 50. For those 50 and over, $6,500 serves as the figure until the taxpayer reaches the maximum age cutoff for the deduction.
The money placed into an IRA not only decreases tax liability, the funds can grow for years in an investment vehicle. So, two benefits are gained from this simple deduction.
Other Basic Deductions
Various other deductions can be taken on the first page of the IRS form 1040. Self-employed healthcare alimony payments, student loan interest deductions, and moving expenses would be among those commonly available deductions. Unfortunately, not everyone knows realizes they are eligible for such deductions. Because they don't know, the deductions aren't taken. Speaking with a skilled accountant to discuss what deductions may be taken could prove helpful the next time tax season arrives.
The Filing Status Change
Changing your filing status isn't complicated, but there are rules and regulations in place defining this category. A single person may be able to file as "head of household" as long as he/she meets the criteria for this particular filing status. An adult child who cares for a parent may be able to claim this status if they paid more than 50% of the cost of the parent's residence. A single parent may be able to claim head of household when caring for children and paying more than 50% of household expenses as well.
Those dealing with the expenses of caring for their household may run short on funds at times. To learn more about title loans and other sources of short-term funding could serve as preparation if an emergency arises. Look at all angles of cash flow. Doing so makes smart financial sense since being prepared makes it easier to act when a problem arises.
Itemizing Deductions on a Schedule A
Taking the standard deduction on a tax return is fairly easy. The taxpayer simply checks the box for a standard deduction as opposed to filling out and filing a Schedule A form. The Schedule A allows a taxpayer to itemize his/her deductions. As long as those itemized deductions are valid, they would be acceptable.
If the amount of the deductions on the Schedule A exceeds the standard deduction amount, then the tax burden would be reduced. Reviewing a Schedule A to determine if there are scores of viable deductions worth taking makes sense.
Itemizing Deductions on a Schedule C
Self-employed persons do not pay taxes on their gross income. Instead, they pay taxes on the profits derived from their business. Here is a generalized example of how this works: $10,000 reflects the gross income amount. $3,000 was spent on legitimate business operations costs. The profit margin becomes $7,000, which becomes the amount subject to taxation.
Self-employed persons do need to completely itemize every single thing spent on business pursuits. Now, not everything spent on business can be taken as a tax deduction. This is why hiring an accountant usually helps. You do not want to take improper deductions. Consequences may follow if you do.
Dealing with Audits
The possibility of an audit always exists when taking personal or business-related itemized deductions. Only take legitimate deductions and keep accurate records of proof. If you prove your case in an audit, then things likely won't be too problematic. Coming out of an audit with disallowed deductions can mean more expenses and, possibly, other serious problems.
Cutting Down on Other Debts
Attempting to reduce a tax burden may be a worthwhile pursuit for someone hoping to ease financial pressures. Reducing a tax burden certain is a wise strategy to employ, but doing so without thinking about the overall big picture of debt and expenditures could be a mistake. Case in point, anyone with an outstanding pink slip loan should look into how to refinance car title loans. You can also get a Texas car title loan from us.
Dealing with taxes, debt, and other expenses can be tough. With a smart and strategic approach, all these issues can be mitigated, like with Texas title loans.