Do you want to decrease your tax bill substantially? Read this and find out all about commonly ignored tax deduction trends.
An income tax break is basically a way to save on tax liability. It provides us with substantial savings in the form of tax credits, tax deductions, tax exemptions and other noteworthy incentives. It can greatly decrease the taxpayer’s liability. With the help of a good tax professional, taxpayers can cut their tax bill to the bone.
According to the federal regulations, tax deductions are the expenses that are subtracted from a person’s gross income to decrease taxable income. Moreover, it is also important to note that credits reduce dollar-to-dollar tax liability and can have a much pronounced effect than the deductions. Most of the people are in the dark, when it comes to taking advantage of tax breaks available in the market.
This is where experienced and professional CPA and accounting firms, like EB Tax Consultants in Brooklyn, NY, come in. If you have been negligent regarding your financial affairs all year, hiring a tax professional is your best bet. However, there are certain things that you must know to understand the process and characteristics of the tax breaks.
When the time comes for you to file your taxes, gaining ideal returns is not completely about skills. Most of the taxpayers, unfortunately, miss out on the deduction and tax breaks, simply because they are completely unaware of them. Health and medical expenses, insurance premiums, and benefits provided to home owners through tax breaks are often overlooked by the taxpayers.
For Individual Filers
If you have a gut feeling that you might be paying more tax than you should, these guidelines will help you identify the areas where you can save massively.
Disability Insurance
This is the most common type of health insurance that is often ignored by the taxpayers. These types of premiums are deductible as a business expense, in relation to self-employed taxpayers. However, if you decide to extract the premium, the benefits that are paid through the policy will be counted as a taxable income. On the other hand, if you decide not to deduct the premium, the benefits cashed on the policy will not be considered a taxable income.
Health Savings Account
This is another insurance related to saving, provided to the members of the traditional health group that has access to the health savings account. This kind of premium incorporates a tax advantaged savings characteristic with a high deductible insurance policy.
Timing Medical Expenses
The medical expenses, which are included in your tax bills, are 10% of your gross income. A good tax preparer will enlighten you on how you can boost your tax deductions, if you schedule your medical expenses and operations in a single year.
Receipt of Unemployment or Workers' Compensation Insurance Benefits
It is very important to differentiate between the unemployment benefits from a state unemployment agency from worker’s compensation that is allocated to the employees, who are unable to perform their duties, due to the result of a work related incident. Unemployment benefits are always taxable; however, workers’ compensation is not considered or declared as income.
EB Tax Consultants in Brooklyn, NY, is a dedicated agency, which is comprised of professional tax preparers and accountants, well versed in the art of tax deductions and exemptions.
For Homeowners
The advantages provided by the American government to home owners encourage several families to become invest in real estate each year. With the help of a good tax professional, you will be able to write off almost your entire mortgage interest rate, property taxes and several other federal income tax deductions.
Accountants identify the homeowner-related tax breaks mostly as MID (Mortgage Interest Deductions). If you are uninformed about the process, through which you can claim significant tax breaks, hiring a good accounting firm such as EB Tax Consultants in Brooklyn, NY, is a good bet. Here are some of the tax deductions that you should keep your eye out for.
Origination and Discount Points
They are only applicable to home mortgage and refinancing. This allows you to write off points, where 1 point is equal to 1% of your principal loan amount.
Interest on a Home-Improvement Loan
It is completely deductible, but only up to a $100,000 debt. Moreover, interest paid against the home equity line of credit (HELOC) is also incorporated in a tax break.
Property Tax
They are mostly tax deductible. However, some of them aren’t like the attorney and appraisal cost, credit report costs, and title insurance costs.
Energy-Efficiency Tax
If you have taken an initiative to install your home with energy-efficient devices, the IRS will give you a tax credit of $500, which is valid until December, 2016.
Renewable Energy Tax Credit
If you have incorporated a renewable energy project into your home, like sun or wind energy, you will automatically become eligible for the Renewable Energy Efficiency Property Credit. This will allow you to avail a tax credit up to 30%, depending upon the cost of the equipment.
Income and Interest Rates on Reverse Mortgages
Reverse mortgages are considered as an advanced loan and not income; therefore, it is not taxable, and the interest accrued on the principal amount is not deductible, until the loan is completely paid off.
Home Improvement and Expenses
These deductions don’t include the cost of the materials and the labor used during the course of your home improvement project. However, you can access a tax break on the interest of the home loan that you took out to pay for the materials and the contractor.
Purchasing a Home
First time home owners are allowed to borrow at least $10,000 from their IRA accounts, without any penalty or repercussions. They can also access their parents’, child’s, or grandchild’s IRA accounts to assist them in buying their home. The stark difference between a traditional loan and a 401(k) loan is that the interest paid on the latter is not tax deductible.
If you are unsure about how to go about the business of filing your tax bills or you are completely unaware of the financial jargon and technicalities, contact EB Tax Consultants. Located in the heart of Brooklyn, NY, we strive to provide our clients with streamlined accounting services. Our tax professionals and tax preparers will guide you through every step of the way, thus decreasing any anxiety or stress you might experience regarding taxes.
ERNIE BUSTAMANTE