Tax Deductions

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greenfreak

New Member
The current brawl in other thread(s) got me thinking about tax deductions... :D

I've done my own taxes since I started working except for one year when I had a big deduction for being a full time student and working full time. Besides that, I've done my standard 1040EZ form, no deductions.

There are so many things that I would never have thought of that other people told me (I don't know whether they were right or not) I could deduct.

Now I'm thinking I should look into this. The only complications of taxes with me is the form I get telling me how much I paid in interest on school loans, but otherwise, it's pretty simple. I did give a bunch of money to charity last year (Sept 11th funds) but some of it was online and I didn't get a receipt.

What do you deduct? And do you pay someone to do it? I don't know how much trouble that might be and if it would be worth the time and money.
 
nearly all my taxes have been run through the companies i work for as we have a tax-as-you-go thing in the uk. i am reasonably clued up about how they work and have worked them out a few times to make sure my employers hadn't over-taxed me.
 
I gave a fairly worthless car away to charity and claimed it as a deduction. I would recommend this to anyone as good financial decision unless the car is really worthless.
 
ris: Here in Canada we get taxes deducted each week as weel but you still have to file in the spring. It hardly ever works out that you paid exactly the right amount of taxes. You usually always end up paying in or getting back.
 
greenfreak said:
What do you deduct? And do you pay someone to do it? I don't know how much trouble that might be and if it would be worth the time and money.
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I'm honestly not very up to date with New York's tax codes. However, if it is anything like Ontario's, you would want to get a professional to do it for you, in my humble opinion. There are a lot of things I did not know that you could do in Ontario, and as a result my income tax is done by a company that does tax returns along with my family's tax returns. That way you can transfer tax credits, deductions, fees, and so forth to who needs it most. For example, one year I made barely $8,000 which would be near $0 after the $7,800 personal deduction. As a result, I did not need to use my tuition (which was over $7,000) deduction. That was legally transferred to my parents' tax return.

There are a lot of loop holes, legal ones, that you can take advantage from to pay only what the law requires you to pay. :) And unless you're a professional, I don't think you will know about all of them.

So in short, I'd recommend you get a good company to do it for you. That way it is legal, proper, you don't have to waste time doing it, and you probably pay less than what you would normally pay. ;)
 
Nixy said:
ris: Here in Canada we get taxes deducted each week as weel but you still have to file in the spring. It hardly ever works out that you paid exactly the right amount of taxes. You usually always end up paying in or getting back.
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Thats right. I've been paying a lot of federal tax, all of which I will get back in March or so. Over $3,000. That might not seem a lot, but boy, I can't wait for that check.
 
$3000?! :eek:

*passes out*

I am gonna get some back but not near that much cause I didn't pay that much :mope:
 
PAYE is what ris meant - pay-as-you-earn. Most people who are employed by others are in this scheme and their tax, national insurance contributions and possibly superanuation (pension plan) are deducted at source so they receive their wages net. Self-employed have to fill in the self assessment forms which the tax office will help you with if you file them by certain dates. If you file them late(after 31st Jan I think) then you get fined and charged interest on what you owe. My mother had to file tax returns as her pensions are above the threshold for tax until last year. Now they've decided she doesn't need to as they can obtain all the information themselves and her pensions are taxed at source.

There is also software available here in the UK for calculating your tax liability.
 
At 30, I doubt my parents are going to be transferring tax credits to me. Don't take this the wrong way but once you're an adult, I don't think taking tax credits from family members is cool. You should be able to stand on your own and if filing your taxes isn't that complicated, it's laziness to pay someone to do it for you--especially when you don't take deductions. Which is why I taught my boyfriend to do his own taxes rather than paying $45. every year. It's not all that difficult if you follow directions and have a calculator.

I had a guy do my taxes once and besides the school deduction I mentioned, I really didn't have anything else to deduct. I'm not paying anywhere from $30. to $100. for that if I can tele-file for free. :shrug:

I was just curious mostly about the people in the US and what deductions they take. I don't think it's a NYS thing, I think it's a Federal thing.
 
i have a professional do mine. there are all sorts of things i can deduct that are work related. a couple of years ago i filled in the short form as a comparison and, after deducting the cost of the accountant, i was up like $50-100.
 
greenfreak said:
At 30, I doubt my parents are going to be transferring tax credits to me. Don't take this the wrong way but once you're an adult, I don't think taking tax credits from family members is cool. You should be able to stand on your own and if filing your taxes isn't that complicated, it's laziness to pay someone to do it for you--especially when you don't take deductions. Which is why I taught my boyfriend to do his own taxes rather than paying $45. every year. It's not all that difficult if you follow directions and have a calculator.
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However, I AM still living with my parents. Once I move out things will change. But that is not likely to happen until I graduate, or if I marry.
 
If the stock market is doing decently, you can have your employer withold $0 from your weekly/monthly paycheck, and make a lump payment into the IRS at tax filing time in the spring. Do just what the IRS does and estimate what you should be paying based off of your estimated yearly income and expected deductions. Take the appropriate amount out of each paycheck yourself and put it in a no-load low expense ratio mutual fund with low volatility... something like an index fund that tracks the S&P 500 would be a great choice.

At tax time, calculate taxes and sell enough shares to cover your tax payment... should be 80% to 95% of what you paid into the fund during the year, depending on the market. Leave the residual to keep the account open, and do the same the next year. It complicates tax filing just a bit since the shares you sell are taxable as a short term capital gain, which will increase slightly the amount of shares you need to sell to cover the taxes... which increases your taxable income... Takes a bit of simple algebra to quickly find the correct amount to share.

You can reduce your taxes by ~10% or so by doing this if you count the value of your fund residual.

Now, I don't think you can do this year after year after year. I believe that if you grossly underpay the IRS during the course of a year and pay in substantially during tax filing time for a few years in a row, then an audit is in order. I think it's either three or four years in a row. So, you could use this method for maybe two years, then pay normally for a year or two... repeating the cycle.

I'd also check with someone very well acquainted with the federal tax laws to see if this would get you in any "long term" trouble with the IRS.

As for other ways of "beating the system" one of the most effective is starting a personal P-corporation (I think that's the name of it). Money spent from your personal income towards your "corporation" can be claimed as operating expenses, which deduct from your taxable income. Income your corporation makes is added to your taxable income. You are allowed a grace period of something like a couple of years before you must post a net profit for the corporation, so in the short term it allows you to have a "crappy company" that reduces your taxable income. Your computer, supplies, some travel, and other miscellaneous things can be written off as operating expenses.

Of course, that's borderline illegal IMO. However, if you really do think you want to start your own business, that's the way to go. If you're lazy and just don't make any money, well... no harm done really. Suppose it's a business that is trying to create some marketable electronic device (could be really simple). Then all the tools, computers, and electronic equipment you buy that could be used in the pursuit of your business objective are operating expenses. If you are truly trying to make some extra cash on the side, then it's a godsend. Even something trivial like teaching a few private guitar/drum/whatever lessons might allow you to write off some things you would purchase everyday. Be careful on this one though... if the IRS finds out it's only a tax shelter, they won't be too happy.

For students, things like personal computers, calculators, and other supplies and such can definitely be written off.

Then there are trust funds... and now you are really pushing the line and risking jail time. ;)
 
Oh, and if you file your own taxes, it's well worth the cost to buy a software program like Turbotax or similar to help you. It can be extremely useful in identifying deductions that you had no idea you qualified for. It will probably pay for itself in the first year, and the updates to the software for new tax codes IIRC don't cost anything/very much.
 
Ok, i DON'T think this is the place to be admitting to tax fraud!!!!

In terms of taking tax credits from parents the only thing I will claim that my mom helped pay for is school. She paid for my dorm room but all of that will be claimed on my tax return. Not because I need extra deductions but because it is easier that way :)
 
Jerrek said:
Yes, starting your own company(ies) to claim deductions is worth it. We do it too.
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Well, I've been thinking about doing that, but only because I am serious about starting a business myself, and it seems to be the easiest and least costly way to do it. You can start small, and grow as you become able.

I haven't done it yet though because I'm not quite ready to take on the home-business part of it, and I think it's morally wrong to do it just for the purpose of tax evasion. If your family is doing it only to shelter income from taxes, and has no desire to actually pursue a home run business, then they should think twice about it, regardless of the advice their tax consultant is giving them. Not only is it wrong, but it is illegal... at least here in the States.

Sure, you don't get caught very often, but that's not the point. Most murder cases are never solved either.
 
Jerrek said:
However, I AM still living with my parents. Once I move out things will change. But that is not likely to happen until I graduate, or if I marry.
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Which is why I said "don't take this the wrong way". This thread isn't about you. There are two others that are, which is why I started this one to keep that out of it.

OLI, that's great info. That's one of the things I heard, about deducting the computer, and supplies and such if I had a business. I was thinking about doing that for selling photos and Rusty has been thinking about that with his web design but neither of us have done it yet. It doesn't take much capital to start, but don't you need to show a profit in the first year to make all of it tax deductable? That wouldn't be a problem.

Oh and I keep hearing about these software programs. Maybe I'll try one out this time. I'm just itching to get my taxes done now... The forms are sitting next to me. I want that money back and soon!! :D
 
Nixy said:
Ok, i DON'T think this is the place to be admitting to tax fraud!!!!
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What tax fraud?

My mom does have her own business though. She is a registered nurse and started her own company that specializes in some sort of colon cleaning therapy. Hydrotherapy? Ugh, I don't especially like any of that stuff.
 
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