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Tags: finance, income tax, lower your liabilities using tax deductios
 April 15th is a day away and while most of us have no problems paying the IRS, we do want to lessen the burden it has on our financial pockets. To do that you just need to lower your liabilities using tax deductions. Tax deductions or levy takeaways represent the expenses that the taxpayer has incurred during the past year and affects levy imposed on their earnings.
What these tax deductions do is to lower the overall taxable amount and thus lower the liabilities you need to pay to the IRS. People sometimes interchange these takeaways with tax credits. While similar in concept their effects widely differ. While tax deductions lower the total taxable amount, tax credits actually lower the actual amount payable.
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Let’s say your income comes to $100,000 with total tax deductions equal $2,000. The remaining $98,000 will be your taxable income from where your liabilities will be calculated from. The amount of money saved would be the portion of the $2,000 deduction. Now let’s say the levy amount is $5,000 with a levy credit of $1,000.
This means your liabilities will only be $4,000. You actually save on the full $1,000 credit amount. The amount of your taxes due is directly related to your earnings bracket. If you fall into a lower bracket you are generally taxed at a lower rate. As you go up the brackets so too does your levy percentage rate.
Fortunately, tax deductions can be used to lower the taxable amount enough that you can fall into a lower bracket. There are different types of subtractions—the "above the line" and "below the line" types. The line that is referred to is a literal line on the forms. After calculating total income, above the line deductions are taken to determine Adjusted Gross Income.
Then there is a solid line at the end of the page. Below this line, you choose between the standard or the itemized deductions, whichever is the larger of the two. After these are subtracted from the adjusted gross income the resulting number is your taxable income, which then determines your bracket and thus the levy percentage you will pay.
The system provides for a number of deductibles available to individuals. Each has its own particular requirement depending on your filing status, earnings, and others—separately calculated earning limits which triggers them or rules involving your prior returns. You may enjoy a tax deduction based on your household makeup—whether you are single, married filing jointly or separately, or as a head of the household—and for your spouse, as well as additional ones for each of your qualified dependent.
Other than these personal and/or familial take aways, there are those that are related to the payment of interests on certain loans, like mortgages and equity loans and even mortgage insurance issued on or after January 1, 2007. State and local taxes can also be subtracted but you must choose between deducting state and local income taxes or state and local sales taxes.
You can also write off out-of-pocket costs incurred while doing good works and other such charitable contributions. If your parents paid back your student loans, the IRS treats it as though the money was given to you, who then paid the debt. So, if you’re not claimed as a dependent you can qualify to subtract up to $2,500 of student loan interest paid by our parents.
Other things you can subtract include but are not limited to: educational expenses, union and professional dues, capital losses, cost of tax advice, and certain moving expenses. Even certain job-search expenses maybe allowed. Taxpayers can also take advantage of tax deductions not only on a federal level, but also on a state or local level wherever allowed.
Tax deductions are breaks given to us by the government—it’s there; use it.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
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