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I purchased a new car and was informed that i could deduct the sales tax. Filed my return but my preparer said that the standard deduction was greater than the sales tax of the vehicle so it didnt make sense to itemized it. I thought this tax deduction was in addition to the standard deduction?

If you have a high-deductible health insurance plan, you should be eligible for a tax deductible health savings account. What this means is that you can set up a savings account (yes, you get paid interest) to deposit money into each year. Since I am single, I can deposit up to $2,800 per year before tax. (If you have a family, I believe this limit is raised to $5,600 per year). This means that I can put $2,800 into my health savings account and write that off. I don’t even need to itemize for that year if I want to take the deduction. The money sits in the account and earns interest tax-free until you need to use it for related medical expenses.

Here is an example of how this works. I start my high deductible health insurance and tax deductible health savings account on January first, 2008. I start the year off by depositing the maximum $2800 into the account. Throughout the year, I end up incurring $2000 worth of medical expenses which I use my tax deductible health savings account to pay for. At the end of the year, I have $850 left in the account (I made a few extra bucks because of the interest). When it comes time to file my taxes, let’s pretend I made $30,000 in wages that year. Well, since I made that $2800 contribution to my tax deductible health savings account, the government is only going to tax me on $27,200 rather than the full $30,000.

Ok, so I saved a bunch of money on my 2008 taxes, and I have also made a few bucks in interest for my tax deductible health savings account along the way. Now it is January 1st, 2009, and I still have this $850 left in my account. Any remaining balance rolls over. This is just like a regular savings account; its not like a “Flexible Health Spending Account” where the unused balance at the end of the year is lost. So I have this $850 still in my account on January 1. So I decide that I want to make the maximum tax-deductible contribution again, and put another $2800 into the account. Again, I get to write that $2800 off when I do my taxes, and now I have a whole $3650 in my Health Savings account that is just sitting around earning interest.

Remember that you don’t have to choose to throw in a whole $2800 all at once. You can make as many deposits as you want into your account. At the end of the year you total them all up, and you can write off the sum of them as long as it is not over the legal limit (for 2008, the limit is $2800 for single people and $5600 for families).

You can use the money in your tax deductible health savings account for a wide range of health purchases. Not only can you use it to cover any medical bills that are not covered by your insurance (your deductible), you can use it to buy over-the-counter medicine, even diapers!

If you don’t have medical insurance, start looking online for something today. My plan is only $50 a month and has already saved me well over ten thousand dollars in medical bills, not to mention having the tax benefits of the tax deductible health savings account.

I am a foreigner working in the US. I file the resident 1040 tax return. I support my parents abroad. Can I claim tax deduction on my tax return? If so how?

In any home business you definitely have more tax advantages than if you were self-employed. The tax advantages become substantial when you consider how you can improve the profitability of your business by declaring all of the home business tax deductions you are entitled to.

You may be missing some very important deductions. You must itemize your deductions for your home business operation on a separate schedule just as you would for your personal deductions. Knowing which deductions you are entitled to can save your home business hundreds of dollars a year.

Here is some background information on how your income tax amount is arrived at by the IRS.

The U.S. taxation code states that almost all income is subject to federal income tax. The way that you, as the owner of your home business, arrive at the final amount of income tax is as follows:

Gross Income – (All Expenses + Miscellaneous Deductions + Depreciation on Assets) = Taxable Income.

Taxable Income X (Your Tax Rate) = Income tax for the fiscal year.

Here is a quick definition of the terms in the above taxation equation:

Gross Income = The total of all income for the year after the cost of the inventory has been paid for.

Expenses = All costs of doing business during the fiscal tax year. Examples include payroll, materials, supplies and interest on business loans, etc. To find out if an expense qualifies as a legitimate business expense, consult your accountant or the IRS.

Depreciation = This is the way of spreading out the deductibility of an asset over a period of more than one year.

The IRS has certain different depreciation schedules for different business property. This is done for assets like real estate, equipment and other assets with a long economic life. This method of taxation write-off has certain advantages. Be sure to talk to your accountant regarding proper depreciation rules. These rules are subject to change by the Congress and the IRS.

Miscellaneous Deductions:

This is an often misunderstood and overlooked way to save a lot of money on taxes. Remember that these types of expenses must be totaled up and declared on a separate schedule of your income tax forms.

Always track your expenses and be sure to save at least one copy of every deduction. You will be asked for proof of every transaction that is declared as a deduction if you are audited by the IRS!

Here is a list of some of the things you can deduct from your income taxes:

Business related expenses include:

1. Air fares
2. Auto expenses
3. Books and Magazines
4. Educational Expenses
5. Home Office Space* + a portion of utilities, telephone, and maintenance costs
6. Office Furniture
7. Cleaning Expenses
8. Meals with Business Clients
9. Laundry Expenses (When Traveling)
10. Advertising
11. Impairment-related Expenses
12. Licenses and Regulatory Fees

* If you own your home you must use the IRS depreciation rules to determine this deduction. If you rent you may also deduct a portion of your rent.

Check IRS Publication 535 to find out if you can deduct any or all of the above.

As you can see there are many deductions that are allowable for your home business. The best way to get more information on tax deductions and related information on income taxes is to go online to www.irs.gov. There you will find a helpful search engine containing thousands of government publications that you can research and print out if you need to.

Now you have a good idea of the deductions you are entitled to take. So do your research, keep track of your expenses and take all of the deductions you can for maximum profit every year.

Federal income tax deduction, you’ve heard the term before, but what is it exactly? Well, what a federal income tax deduction is a statutory requirement of the United States law. Every single United States citizen must pay it, as long as they fall in a tax bracket, which is determined by the United States government. The way income tax reduction is calculated is by removing excluded income, exemptions and permissible deductions from gross income.

There are a few exemptions from having to pay the tax deduction. These include any money from life insurance earned, any money from gifts or inheritances, money from any personal injury settlements, and any interest earned on state or municipal bonds. There are some considerations when trying to take advantage of any of these exemptions in regards to the income tax deduction, so it is best if you have a tax preparer help you in these instances.

There are few other reasons you may have additional deductions beyond the federal tax deduction. In fact the tax deduction is considered the standard deduction. The following are called ‘above-the-line’ deductions. These include, trade and business expenses, alimony, IRA contributions, net capital losses and any money used on property that is used to generate an income. Someone who has a reduction may or may not be able to take advantage of these other deductions, but you should have a tax preparer help you with these if at all possible.

Those who earn over a certain amount and have a federal income tax deduction has something called an alternative minimum tax they can take advantage of. Because of having an income that exceeds a certain amount the person may have to pay more on their tax rebate then would allow for them to be able to take advantage of other deductions and credits. Therefore they have the option of claiming an alternative minimum tax instead.

There is one last option for almost anyone; to paying the federal tax deduction straight out and this itemized deduction. This can include state and local income and taxes, donations to charity, employee transfer costs, medical expenses, casualties and any loss that may have been incurred from this and any interest paid on mortgages. Itemized deduction can be a bit more of a hassle than it’s worth though, depending on how many of these you qualify for, so check with your tax preparer ahead of time.

In the end is up to you whether or not you will go with just the standard deduction or with a more detailed one such as itemizing. But either way, at least now you hopefully will have a better understanding of some of things involved with a federal income tax reduction.

Looking for a way to get rid of an old car? One way to do this is by selling your car. However, we all know that this can be a very daunting task and with an eight-hour job, is almost impossible to do. Fortunately, there is another convenient and fast way to get rid of your old car and this is through car donations.

A car donation is a good way to help those in need, since it involves donating your car to charity through car donation services. These services make the donation easy and convenient by handling all the related tasks, from picking up your car to the necessary paperwork.

Tax Deduction Donations

To reward charitable donations, the government allows a tax deduction provided that donations are classified tax deduction donations, and a car donation is one of them. In the past, a tax deduction was based on the fair market value of the donated car. But then the government found out that individuals used car donations for the sole purpose of enjoying a tax deduction. And what was worse was that the claimed fair market values were not always accurate. These values considered only the make and model of the car, and did not consider the car’s depreciated state. So what usually happened back than was that the gross sales amount of the donated car did not match the claimed fair market value and the tax deduction was a bloated value.

Revised Legislation

To correct this, the federal legislation governing car tax deduction donations was revised in 2005. But before you understand how the tax deduction from car donations is considered, you must first understand these two types of amounts:

? Gross Sales Amount. Car donation services usually sell your donated cars at auctions. The amount of the proceeds is what is called the gross sales amount.

? The fair market value of your donated car is the value that you and the car donation services agree upon.

The car tax deduction donations legislation generally allows the gross sales amount not exceeding $500 to be used as a tax deduction.

However, the car tax deduction donations legislation is not limited to the gross sales amount. An amount equivalent to the fair market value of the donated car can be used as a tax deduction provided that two conditions are met.

If the car is directly used for the charitable institution’s causes: either used for their operations or donated for use to a needy individual or family, then the fair market value of the donated car can be used as the tax deduction. Another fair market value tax deduction condition is when the car donation services do any improvements on the car before its sale or donation. Moreover, the tax deduction using the fair market value of the donated car is not limited to $500. So if you donate a car, you may want to go with a car donation services that will use it directly for charitable causes especially if your car is in good running condition. But it should be said that the greatest benefit from a car donation is the opportunity to help those who are in need and not the tax deduction.

To be able to claim a tax deduction from a car donation, an acknowledgment receipt should be attached when you submit your income tax return. This AR should contain details such as your tax identification or social security number and the vehicle identification number. If your tax deduction claim is based on the fair market value, the AR should also contain details on the car’s intended use and or the improvements done.

For 18 years I have been preparing income tax returns for individuals. Unfortunately even as a tax preparer I miss deductions on my client’s tax returns but for those who prepare their own returns I am certain these 10 tax deductible items are almost always overlooked.

1. Miles driven for medical related incidences are deductible as an itemized deduction. The rate is $.20 for 2007 and $.19 for 2008. Miles are totaled for doctor visits and hospital visits. Start adding them up and you will be amazed. Think about it on a weekly or monthly basis and then multiply by 52 or 12 respectively.

2. Interest paid on a 2nd mortgage is deductible as long as the residence has a function kitchen and bathroom. Have you ever considered your motor home in this hidden tax deductible item?

3. Charitable donations are often overlooked since we do this out of the kindness of our hearts. But when it comes tax time sit down and figure these up. Include donations to Deseret Industries and vehicles donated to different foundations.

4. Moving expenses incurred for a job related move are a tax deductible item. There are certain tests to qualify for this deduction so be sure to consult your tax advisor. Deductions include transportation and storage of household goods. Travel including lodging from your old home to your new home is deductible.

5. Deducting alimony can provide an annual tax reduction of $3,360 per year assuming $1,000 paid per month and you are in a 28% tax bracket. Do not pass this one up as the alimony is also taxable to your ex.

6. Student loan interest paid on loans for education is deductible. People often miss this one because a lot of changes take place after graduation and this deduction gets over looked. With rising education costs the student loan interest really adds up.

7. Taxes withheld from your paycheck that have been sent on to your state on your behalf by your employer are deductible. Also if you owed your state for taxes from the year before that you paid during the current tax year do not forget this tax deductible item.

8. Loans made to family and friends who have failed to repay you are deductible as worthless debts on Schedule D. You are limited to $3,000 per year until the full loss is taken. But if you have capital gains then the whole loss can be taken up to the amount of the capital gain plus $3,000.

9. If you are self employed there are countless deductions but for the purpose of this article do not be afraid to take a loss on line 12 of your 1040 resulting from your Schedule C. If I did not make any income from my self employed venture can I take a loss? Yes absolutely.

10. When a family member moves into another home you own often you will forget to report it. The incentive to reporting is that this is a tax deductible item. You can usually create a loss to be reported on your 1040 when these deductions are properly accounted for.

Most people do not like the idea of having some money deducted from their income whether they earn a lot or not but taxes are something we cannot avoid. It gets even more uncomfortable when you have to calculate just how much you have to part with. Whether it is for medical care, mortgage or anything else you really do not want to know how much the internal revenue service -IRS takes from you.

There are numerous tax preparation softwares out there that will assist you in reducing the many liabilities that accompany tax claims. The most common of them is the Tax deduction calculator which is simply a list of online questions that you can respond to and then based on your residence location. However, In order to get it better, it is easier to have a checklist of your own to use as a guideline:

Understanding deductions: Failure to understand different taxable payment can end up costing you a lot of money at the end. Having a checklist of the various deductions that you are supposed to pay can help you understand the process and easily get at the right figures.

Student Loan interest: Some of us who went to college acquired a student loan to make ends meet in college and as soon as the taxpayer hammer starts pounding away at your salary with monthly deductions, then you need to start jotting down the amounts and make sure that they get cleared and no extra charges are added.

Mortgage payments: If you have entered in a mortgage program and you are paying up for the house, it is important to understand the charges that go with your tax deductions so as to keep your financial affairs well close.

Medical insurance or health payments: Health related tax deductions do not usually have many complexities as compared other deductions. Mostly if you are covered by insurance bodies, then it becomes easier to handle as all the processes that are involved are handled by the insurance body. The procedures involved may be finding out the nature of health cover, computing the deductible amount and submitting it to the taxman.

Spousal changes: Spousal tax deductions can also be part of your tax responsibilities. If you happen to be married or you plan to get married, then it is important to understand the process and deductions that goes with spousal taxes. List out among other deductions in the checklist and work out how much you are supposed to settle and how much you are exempted from. It is also advisable to conduct a joint filling with your spouse.

He was born on new years eve. Does he have to be a member of our household more than half of the year to be eligible for any tax deduction??????
Thanks for the quick responses.

One of the most common tax deductions I see missed on a regular basis is the tax deduction for the business use of a personal vehicle.

When I meet with new clients and discuss this deduction, I hear all sorts of reasons as to why they haven’t taken this deduction:

They didn’t know they could They don’t use their vehicle that much for business They were told that since it was a personal vehicle, it couldn’t be deducted They thought it was a red flag for an audit

The truth is, anytime your business uses your personal vehicle, there’s a tax deduction, whether the business use is 1% or 100%!

Have Your Business Reimburse You for Its Use of Your Personal Vehicle. Your business can reimburse you for allowing it to use your car – even if you are the one using it in the business!

When your business reimburses you, your business claims the reimbursement as a deduction, reducing the amount of business income that is taxable, which in turn reduces your overall taxes.

The tax savings get even better! The reimbursement you receive from your business is not taxable to you – it is tax free income!

Don’t Miss These Vehicle Expenses To make this tax reduction strategy work, you’ll want to track how many business miles versus total miles you put on your car in a year. Your business miles divided by your total miles is your percentage of business use. This is a very important percentage because it is the percentage of your vehicle expenses for which you can be reimbursed by your business.

Vehicle expenses include:

Maintenance, Tune-ups, Replacement parts, New tires, Gas, Oil, Washes, Car loan interest, Depreciation, Lease payments

These deductions add up, which can mean big tax savings!

How Much Can You Save in Taxes? Here are 3 easy steps to estimate your tax savings from legally deducting your vehicle expenses for business.

Step #1: Determine your percentage business use of the vehicle by using the calculation in the above section.

Example:

Business miles = 6,000

Total miles (including business, personal and all other miles) = 10,000

Business percentage use = 6,000 ?,000 = 60%

Step #2: Calculate your total annual vehicle expenses, using the above list as a guide. Then, multiply the total by the percentage business use from Step #1. This is your deductible amount.

Example:

Total annual vehicle expenses = $15,000

Multiply total annual vehicle expenses of $15,000 by business percentage use of 60% to determine deductible amount.

Deductible amount = $15,000 x 60% = $9,000

Step #3: Multiply your deductible amount by your marginal tax rate. The result is your estimated tax savings from deducting your vehicle!

Example:

Deductible amount = $9,000

Marginal tax rate = 30%

Estimated tax savings = 30% x $9,000 = $2,700…every year!

You can usually find your marginal tax rate in a summary report provided with most tax returns prepared by a CPA or tax software.

STOP! Don’t Drive By This Deduction. The vehicle deduction is one of my favorite tax deductions because it has the ability to turn expenses you already have into tax deductions. This creates a permanent tax deduction which eliminates tax!