Even with the help of incredible tax software (TurboTax), taxes are still confusing. You always wonder if the software is working properly, if it’s really filing your taxes correctly and getting you the biggest refund. Well, it’s that time of the year again. Time to start gathering receipts and preparing for the inevitable. But this time around, you’re going to be better prepared with the tax tips and advice that follows. There are tips here for anyone, whether you’re a single, self-employed, work-from-home loner to the ultimate family man who just had a baby. Most people are primarily concerned with income taxes. If that’s the case, check out the tips below, then get your hands on some professional advice for preparing basic income taxes.
Working From Home
Let’s start by lending a hand to our lone rangers. One of the most difficult things for a self-employed person to do is save enough of their income to pay taxes at the end of the year. Looking forward, it would be wise to set aside at least twenty-five percent of your income in a separate business account.
If you have an extra room laying around and haven’t already converted it into a home office, you can qualify for a Home Office Deduction if you take serious steps toward making your den a bonafide business area. Don’t fool around, though. Your office must be used as such “exclusively and regularly” according to the law. So don’t try to call your work shed or your garage your office, because that definitely won’t fly with the IRS.
The Working Class
If you’re new to your job, you may be in luck. You can deduct a number of moving expenses if you had to relocate for a new job and move at least fifty miles from your previous residence. A number of expenses qualify for this deduction, including but not limited to:
- Paid storage
- Truck rentals / moving company
- Family expenses incurred as a result of the move
- Mileage on your car
- Moving materials
If you want a new job, but aren’t quite there yet, there are deductibles for that, too. Printing materials and mailing fees (thing resumes and cover letters), job-hunting agencies, travel expenses, moving expenses, etc. Just about anything that directly pertains to you finding a new job. Things like this probably seem too good to be true, as far as taxes are concerned. Well, there is a catch. If you work as a software designer and suddenly decide you want to work in filmmaking, Uncle Sam is 100% unsympathetic. You can only get a deductible if your new job is in the same field as your old job. So that hurts. Then there’s the fact that job-hunting expenses are considered miscellaneous. In other words, you can only deduct them if they exceed 2% of your gross income.
Any hard-working Canadians stumble upon this article? Don’t feel left out. Get comprehensive instruction on preparing Canadian income taxes.
The No-Longer Working Class
I’m not saying being unemployed is OK, especially if you have a family to look after, but there are some things you should know while you aren’t working. If you’ve been thinking that your unemployment compensation won’t be taxed, then you’ve been dreaming. Make sure you set aside at least twenty-five percent of any unemployment compensation you receive so that you can pay taxes on it at the end of the year. This includes severance pay, too, and any money you receive for vacation and/or sick time.
Family is Everything
Let’s start at square one. Congratulations, you just got married! Now, consider how to reevaluate your taxes. You’ll qualify for more deductions, so make sure you adjust how much money the government withholds. If you’re getting a large refund at the end of the year, there are two ways to move forward: 1) this is good, because it means you’re getting money back that you earned and, in this way, are guaranteed to have saved 2) this is not so good, because the government is holding onto your money (interest free, mind you) when it could be working for you in your investments. Getting a little money back is never a bad thing, but if the stock market has another year like 2013, you just missed out on 30% growth. Yeah, that hurts.
Congratulations, you just had a baby! First of all, get that baby down as a dependent. As long as he or she has a SSN, you’re good to go. Second, you’ll get a $1,000 child tax credit along with the option to claim a deduction. Way to go, baby! But hey, now that you have a kid, it might be time to start thinking about the basics of life insurance. Just a thought.
Congratulations, college costs a fortune! But you can deduct some of the money you spend on tuition. It all depends on your income, but you can expect to deduct anywhere between two and four grand.
Home is Where the Heart (of Taxes) Is
You can make up big ground on taxes with your home. You deduct all kinds of things:
- Mortgage interests
- Home improvements
- Property taxes
- Interest paid on home-equity loans
- Premiums for private insurance
If you went green in 2013, there’s a residential energy efficient property credit that allows you to receive a credit for up to 30% of the cost of solar equipment, wind turbines, etc. Best of all, there’s no limit to the size of the tax credit (until 2016, at least).
If you’re interested in selling you’re home, consider this: if you have lived in the home for at least 2 of the previous five years, any profit you make on the house is tax free (up to $250,00 for individuals, $500,00 for married couples). So if you’ve been in your home one year and ten months, it will definitely pay to wait. You can also learn more about home sales with this home sales and moving taxes course for tax professionals.