Archive for the 'Tax Deductions' Category

IRA Tax Deduction – Pay Your Taxes And You’ll Benefit

Sunday, January 14th, 2007

Everyone saves for the rainy day, our parents taught us to save money from a youngage so that it is of some use at a later stage. Even the taxman says that.

IRA, or Individual Retirement Arrangement, is a personal savings plan that lets you save up for rainy days and gives you tax benefits in the form of tax deductions. All contributions made to this plan are entitled to the IRA tax deduction. This also includes earnings from these contributions unless they are distributed to you.

2 basic rules govern the working of IRA.

The first is the simple IRA. The more traditional way which helps for that long retirement plan. Contributions to IRA are exempted unless you receive any kind of distribution.

Setting up an IRA is very simple, you need to be less than 70.5 years of age before you can apply. A taxable income is necessary to avail this. Only salaries, commissions, alimony, maintenance or any other means of income
Generated by self constitutes this. Rental or any other income from property, annuity or deferred compensation does not qualify as taxable compensation.

The maximum you can contribute to your IRA is either $ 3,000 or your taxable compensation for the year, whichever is less. It goes to $3500 if you are 50 or older. If you are uncovered, you can claim the complete deductions. If, however, you are covered by a valid retirement plan, your IRA deduction can either be reduced or eliminated, depending on the amount of your Modified Adjusted Gross Income and your filing status.

If in case you have made any withdrawals, then you have to pay tax on the amounts available. And it is wholly taxable.

Roth IRA – Roth IRA is the reverse of the traditional IRA. Contributions that you make to this RA will get you no deductions. No taxes on withdrawals or earnings. Everything else about Roth IRA is like the simple IRA. Like the latter it can be either an account or an annuity. To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up.

These two basic rules now sum up what you want to know about taxes and especially the savings aspect. Just make the most out of them.

Home Business Tax Deduction

Sunday, January 14th, 2007

Everyone loves to work from home and have the benefits of home business tax advantage. Let us now take a peek into the world of home business tax and what is in store for us.

Entrepreneurs should avail this facility if they are operating from the environs of home. These deductions include:

1. Home Office: you can enjoy the deductions if you are operating from the house and the house is used for business purposes.

2. Car: you can get the car as a benefit for your business purpose, including the maintenance and mileage. This works out a lot and can save a lot of money.

3. Personal assets: if you are using your personal assts for business, then you can lay your hands on the tax deductions, like for example computers and furniture.

4. Business Journeys:  air tickets, hotels, internal transportation, shipping and even tipping are tax deductible, if used for business purposes. For meals, the government allows deductions up to 50% only.

5. Gifts and Entertainment: now that you are in business, you need to keep your customers and clients happy and what better way than to gift them. But you get a relief up to only 50%.

6. Retirement: The payments you make when saving for your retirement are deductible from your personal income tax. Thus it follows that the dollars you spend for your retirement plan grow tax free in your business until you retire.

7. Family Connections: bringing your children as employees helps you in saving some money as the expenses payable towards them are deductible. Only kids above the age of 8 can be hired.

8. Social Security: As a self-employed worker, you have to pay double the social security contribution. Fortunately, half of this contribution is tax deductible in the 1040 form.

These are only a partial list of what is available to you, for a complete list, log onto the government website and check for yourself.

America Car Donation Tax Deduction

Sunday, January 14th, 2007

You are very philanthropic in nature and you have your old car top be donated. Well, the law is liberal too…

It’s not easy to understand the loopholes or the provisions that you might get in terms of donating your car. The deductions stand at the donors claimed value and the purpose of use of the vehicle. From 2005, the rules have changed a bit. If you put the value of the carat above $5000, and then the organization sells, you can only get the gross profits on the car as the deductions.

Follow these points to keep a track of your maximum deduction available.

1. Eligibility of the organization: The charitable trust must be a qualified one for the contribution to get the tax benefit. A good place to do so is from Publication 78 which is available online and in public libraries. 2. Itemize everything: In order to avail of deductions for your car donation, you need to itemize your deductions. Those who claim standard education can’t benefit from this clause.

3. Fair market value (FMV) is to be estimated: There are various factors that must be considered in order to determine the value of your car. Many used-car buying guides will give you precise instructions so that you can make adjustments to the value of a car for accessories, mileage and other indicators of its general condition.

4. Deduct the FMV: You are only allowed to deduct the fair market value of your car, which accurately takes into consideration the condition of the donated vehicle. You are not allowed to claim the full value of the car, as some people mistakenly believe.

5. File the Charitable Contribution Deduction: When donating your vehicle and claiming tax deduction, record keeping is essential. You must document all the receipts and forms related to the car donation and its fair market value.

Taxpayers who have any doubts about whether a contribution is deductible should call the IRS at 1-800-829-1040, or for TTY/TDD help, call 1-800-829-4059. If you are concerned that contributions are being sought for deceitful purposes, you should immediately contact the appropriate state charity official, who is often located in the state attorney general’s office.

It is always better to know the rules now and then play safe rather than trying to prove our smartness. If you don’t know, better ask your CPA and they will handle the job in a better way.

Do You Qualify For A Home Improvement Tax Deduction?

Friday, January 5th, 2007

You want a bigger better home every time but the expenses are just mounting, hey wait, the government plans to give you some relief in the form of home improvement.

Never cross the line between home improvement and repair. Both are different.

So, what is home improvement? This would include adding a fence, driveway, new room, swimming pool, garage, porch or deck, insulation, new heating/cooling systems, a new roof or landscaping. A capital expense, wherein you would be spending it once in a lifetime.

Now let’s consider home repair. Home repair is decidedly different from home improvement. It is something you do to arrest the decay of your property. You are spending to keep a check on the damage that has been done. A pure damage control

What constitutes home repair? Repainting, any sort of fixing, repairing leaks, and replacing broken fixtures constitute home repairs. But there is also a way to bend the rules, that is show your house as home improvement. So try repairing a few things when you are trying to add a few things to your house.

A drop in home rates should be the ideal time to improve homes, as you get the best of rates at the lowest costs. If you do so, then you can deduct these expenses over the life of the loan and helps in saving a lot.

On the other hand, if you use only a portion of the loan you have taken, then the deduction is proportional. The remainder is deducted over the life of the mortgage. You must also remember that points which are not deducted by the year the loan is paid off are usually cent percent deductible in the payoff year.

So, the next time, you are all ready to add a few things to your house and it could go a long way. A good home is a beautiful home.

Federal Income Tax Deduction

Thursday, December 14th, 2006

The American laws are great fun to play with if you know how to handle them, but better be sure you know the rules, or else you fall into trouble.

The federal income tax deduction is a statutory requirement under the American laws. All American citizens who fall under this category have to pay this. Taxable income is calculated by removing (a) excluded income, (b) exemptions, and (c) permissible deductions from the individual’s gross income.

The following are the heads under which you can avail the tax deduction:

1. Exemptions: Some common exclusion from gross incomes is:
I) Earnings made from life insurance contracts
ii) Earnings made from gifts and inheritances
iii) Proceeds granted for personal injuries
iv) Interest received from state and municipal bonds

certain conditions have to be kept in mind before availing these deductions.

2. Deductions: In addition to the standard deduction, some common “above-the-line” deductions include:
i) Trade/ Business expenses
ii) Alimony
iii) IRA contributions
iv) Net capital losses
v) Expenses incurred due to property used for income generation

income tax laws are not everybody’s cup of tea and so should be handled with care.

3. The Standard Deduction: When individuals have minimal “below-the-line” deductions, they are directly granted a standard deduction. The standard deduction under different heads in 2004 was as follows:
i) Single                         $4,850
ii) Head of household                         $7,150
iii)  Married filing a joint return             $9,700
iv) Qualifying widow(er) with dependent child             $9,500
v) Married filing a separate return             $4,850

4. Miscellaneous Itemized Deductions: These usually include:
i) Interest paid
ii) Taxes paid
iii) Losses incurred
iv) Charitable contributions
v) Medical costs borne

Such miscellaneous deductions are permissible if and only if they surpass 2% of adjusted gross income.

5. Alternative Minimum Tax: applicable when minimum tax revenue is less than the predetermined amount. the individual would now be paying a very negligible tax and helps him in saving some money.

6. Itemized Deductions: The alternative to the standard deduction is itemized deductions. For the year 2004, the major items included in itemized deductions were:

i) State and local income and property taxes
ii) Donations made to charitable organizations
iii) Employee transference expenses
iv) Medical expenses incurred
v) Casualty losses
vi) Interest paid on mortgage

However, the individual can either avail standard deduction or itemized deduction.

The best alternative in understanding such a complex structure is to catch a person who knows the tax structure better and let him do all the work, but keep your eyes and ears open.