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It’s tax time…the dreaded time of year when you’re scrambling madly to gather all your paperwork together and deeply dreading the taxman’s verdict: “YOU OWE MONEY!!!” Oh, the horror…The desolation. How in the “H-E-double hockey sticks” are you supposed to come up with a couple grand to pay the IRS?

Tax RefundActually, you may not have to pay afterall. As a taxpayer, you need to be aware of what deductions you can legally claim in order to lower your taxable income and increase your odds of getting back a refund. If you want to receive thousands of dollars from the government instead of paying, you want to try and qualify for something called the Earned Income Credit or EIC (also called the Earned Income Tax Credit or EITC). There are many tax write-offs that people can take (whether you are a business owner or not) that will qualify you for this credit, and you should take advantage of them. They are set up for the express purpose of helping any taxpayer with a pulse…and a social security number. Below is a list of my ten favorite. Although this is not a complete list, these ones are the easiest for anyone to gather and qualify for.

WHAT IS EARNED INCOME CREDIT (EIC)?

Here’s how taxes work (plain and simple). You make money and you pay tax on that money. The more money you earn, the more tax you pay. (Duh, right?) What you may not be aware of is that if you fall within the low-income tax bracket, you could be due a cash credit towards your taxes equaling as much as $4,710. It’s called the Earned Income Credit and offers low-income workers the opportunity to pay their taxes with the government’s money. And guess what…if you have a larger credit then what you owe, the government will send you that money as a refund.

Here’s How You Qualify:

  • If you have more than one qualifying child, and you earned less than $37,783 ($39,783 if married filing jointly), you can qualify for as much as $4,710 of EIC.
  • If you have one qualifying child, and you earned less than $33,241 ($35,241 if married filing jointly), you can qualify for as much as $2,850 of EIC.
  • You do NOT have a qualifying child, and you earned less than $12,590 ($14,590 if married filing jointly), you can qualify for as much as $420 of EIC.

If you would like to know exactly how you rate, go to this link at the IRS’s website and play with the numbers until you have an idea of how much you might be able to qualify for: http://apps.irs.gov/app/eitc2007/ShowCalcTips.do

TAX DEDUCTIONS

Now that you have an idea, here are legal tax deductions that will get anybody a better refund.

  1. Standard Mileage: This is my favorite of all the tax deductions. It is a valid expense that totals up the miles you drive in relation to business, medical, moving or charitable events, and reduces your income accordingly. Even better, most mortgage companies do not consider it a valid expense when calculating your income for a home loan, thus qualifying you for a larger mortgage. For 2007, the rate is calculated as follows:
    1. $0.505 per mile driven in relation to a business event that you were not reimbursed for. This reduces your income $505 for every 1,000 miles you drive.
    2. $0.19 per mile driven in relation to medical and moving expenses (or $190 for every 1,000 miles).
    3. $0.14 per mile driven in relation to charitable events ($140/1,000 miles).

  1. IRA Deduction: Until April 15th of any given year, you can deposit up to a pre-specified amount into an IRA and reduce your income for the previous year. By doing so, you not only keep money that you might otherwise be paying to the government in taxes, but you are securing your future. (To see all of the limits for an IRA deposit, click here: http://www.irs.gov/formspubs/article/0,,id=117542,00.html).

  1. Health Savings Account (HSA): If you qualify, you can open an HSA. An HSA is a tax-deductible and tax-exempt savings account that can be used for any kind of medical expenses without federal tax liability. To see if you qualify, click the following link: http://www.irs.gov/publications/p969/ar02.html#d0e159

  1. Qualified Tuition Program (a.k.a. Plan 529 or Coverdell ESA): There are several college savings accounts that offer tax deductions, including a 529 Plan or a Coverdell ESA. These accounts can be setup before April 15th and allow you a tax deduction. Just check with your local banker or financial planner to set one up and take advantage of the tax deduction. Click here for more information: http://www.irs.gov/pub/irs-pdf/p970.pdf.

  1. Alimony Paid: You can deduct alimony or separate maintenance payments made under a court order.

  1. One Half of Self-Employment Tax: If you have paid self-employment tax (social security tax and/or Medicare tax), you can deduct the amount of your taxes.

  1. Self-Employed Health Insurance Deduction: If you are self-employed, you can deduct the cost of health insurance for yourself, your spouse, and your dependents.

  1. Moving Expenses: If you moved more then 50 miles for a job or business, you can deduct the costs for moving your possessions, travel and lodging for you and your family.

  1. Student Loan Interest Deduction: You can deduct a maximum of $2,500 of interest on a qualified student loan per return.

  1. Qualified Higher-Education Expenses: If you attended a qualified higher-educational institution (including graduate school), you can deduct attendance costs. These costs include tuition, fees, room and board, and an allowance for other necessary expenses, as determined by the eligible educational institution.

 

As I stated before, there are many other deductions as well, such as your mortgage interest. Check to see if your state offers a Renters Credit.  California is offering a $60 credit.  If you are a home owner, check with your county’s local assessor’s office to get your homeowner’s property tax exemption credit.



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