Lots of people will sigh with bitter remembrance when you utter the name of the springtime curse: "taxes". With the rate of federal income tax withholdings being pulled out of each paycheck - even without state, Social Security, or Medicare taxes to salt the wound - it's not hard to understand why most consider annual taxes to be a burden; even making them feel used by the system.
Even though taxes can be boring and tedious remember that there are some tax regulations that may benefit you. Be aware of all the possible tax deductions that are available and see if you are qualified for any of them. There are some deductions that let you take some of your financial output off your reportable income and some give you the right to not report certain income at all.
Tax Credits and Deductions
The following list of five items, under current federal tax regulations, provide tax advantages:
1. Tax-free income is money you can obtain without worrying about tax concerns, now or in the future. Tax-free income could come in as tax exclusions or tax exemptions. In the majority of cases, the IRS doesn't even need you to report these tax-free items.
2. Capital gains refer to any profit you make selling or trading property that you've held for a year or longer. This also includes regular stock dividends and stock mutual funds. These long-term gains are taxed at a lower tax than regular income such as your salary or interest from investments.
3. Money that is taxed at a later time is called tax-deferred income. As time goes on, the income continues to increase without being reduced by the current tax rate; you should amass a larger amount at a later time. Please bear in mind, that sometime, this income will become taxable.
4. You can subtract tax deductions from you income, reducing the amount of your taxable income. The first deduction class is called "above the line" deductions. These are subtracted directly from your gross income and can only be claimed if you are filing an itemized return and not taking the standard deduction, which will be explained shortly.
5. Tax credits are items that you can use for offsetting your tax payments. This occurs in a dollar-for-dollar exchange. Often, though, you'll need to fill out a specific tax sheet for every credit you claim.
These are easy ways to take care of your taxes while reducing the amount Uncle Sam gets each year.
