Tax Returns: Keeping Taxes Down
What are some tips to pay as little in taxes as possible?
You file the tax return. You had to pay some taxes and then you're trying to think what can I do to lower my taxes. Well Justice Hand, from the Supreme Court many years ago, said it's everybody's God given right to avoid taxes. Evading taxes is criminal and it's a very thin line that we're walking. You know, the job of a tax professional is to try to assist you as a taxpayer to minimize your taxes as much as possible. How do you do it on your own? It's good tax planning. It's preparing for filing your tax return before the fact. The biggest problem that I see as a professional is when people come into my office after the first of the year, bring all their tax stuff in and say, oh, by the way, I did this and such. Had we known about it when it happened or before it happened, there could have been some things we could have done together to minimize the tax effect. But after the fact, there's not much you can do except bite the bullet and pay the man.
What tax benefits can I take advantage of as a homeowner?
The major tax advantages you get as a homeowner are that you have some itemized deductions that you can claim. You can claim the deduction for real estate taxes, if you have a mortgage on the house you can claim the deduction for the interest you pay on that mortgage, and those two items alone will usually benefit you greatly.
What tax benefits can I take advantage of as a freelancer?
You're looking at it again, thinking about tax advantages, different types of businesses, and you say, "I'm a freelancer." You're a freelance writer, or a freelance author, or artist, or whatever. Well, the first case you're looking at as a freelance person is that you're an independent contractor. You're a self-employed individual. So, the income you generate from your business is reportable. It goes on a Schedule C with the tax return, and then all of the expenses related to earning that income are deductible against that income. These are expenses such as automobile expenses or office supplies. If you're an artist the expenses are going to be the paints and the pallet. If you're a writer, it's the computer programme, the software, the paper, and the ink cartridges. Whatever you incur as an expense to earn the income as a freelancer is deductible. You could be a freelance consultant, you could be a writer, you could be an author, or a painter... You could to be whatever you want.
What tax benefits can I take advantage of as a parent?
As a parent, you get many tax benefits. Firstly, an additional dependent or more on your tax return. For the 2006 tax return that's another $3300 deduction. Is that exemption for that dependent? If they are a young child, you may get the tax benefit of a child care credit of up to $1000 per child, if they are going to school and both parents are working, meaning you've got daycare, you can have a childcare credit. There's a lot of differenttax benefits as credits and deductions that available to the parents. Things you need to look into. Again, preplanning, understand the tax rules, read the books, you'll find them.
What is a "tax shelter" and can I benefit from one?
The word "tax shelter" comes up when people are talking. Many years ago, there were tax shelters, but most of them are gone now. The Tax Shelters of old were the kind of thing where you'd put ten thousand dollars into a Tax Shelter, and you'd get a thirty thousand dollar deduction. The problem was, most of those Tax Sheters were shams. You were buying into a "record-master". You put ten thousand dollars into the Record Master and you got to write off the thirty thousand dollar cost to produce the record. Problem was, it wasn't a hit record, it was probably some obscure band that nobody heard of and the only records that were ever produced were the 200 copies that the company gave you, of which you have 195 of them still in your closet. Those Tax Shelters were shams, eventually the IRS caught on to it, and the people had to pay back the tax for the erroneous deduction. There are very few tax shelters out there now. They're the kind of Tax Shelter that you can avail yourself of that will help you in certain circumstances. If you're in a situation where you have a spike in your income or you have some high income and you're interested in looking for Tax Shelters, talk to a professional. But be very wary. The old adage, "if it's too good to be true, it probably is."
