Tax planning is a necessary evil in the modern era. Prior to filing tax returns in April 2016, you must know about the important income tax deductions that will assist you in efficient tax preparation.
These taxes are levied on the sale of specific goods or services. Local governments are authorized to levy additional sales taxes – general and selective. The tax rates specified by the legal principles may be lesser than 1% or higher than 10%. The seller collects this tax form at the point of sale.
Ordinary investment dividends are liable for taxation under the norms of ordinary income. This tax form is also referred to as double taxation because corporate gains are taxed twice – once in the form of earnings, and the other form as income distribution. Double taxation occurs at a lower tax rate for capital gains.
Under reinvestment options, you can utilize cash dividends in order to buy extra shares of the company, but the tax burden will be less. Few companies allow their shareholders to buy additional stocks at a price below the going rate. The difference is liable for taxation under the norms of income from ordinary dividends. The stock dividends will receive tax exemption until the sale of stocks.
Tax form 1040 under the Internal Revenue Service states that interest payable on loans for higher education is liable under taxation. This law is applicable only if the education loan covers the costs of pursuing higher education. You can apply for the education loan for self, spouse, or other dependents, provided the beneficiary is enrolled for the degree program at least in 50% of the course.
This form of tax includes Medicare & Social Security taxes for self-employed professionals or start-up entrepreneurs. The rate of self-employment tax for the year 2014 was 15.3%. 12.45 of the tax amount cover the cost of social security, while 2.9% covers the expenses under hospital insurance. Tax returns must be filed under Schedule SE buy filling the document titled Form 1040 in case, one of the following options apply:
· The net income exceeds an amount of $400.
· Your earnings as a church employee are above $108.28.
If you are enrolled in a full-time degree course in the United States, you can avail tax benefits under the American Opportunity Tax Credit for your college expenses. The maximum amount of tax deduction is up to $4,000 that covers tuition expenses, fees, educational supplies. The tax deduction is valid for education for self, spouse, or dependents.
You may receive a huge tax refund in the next fiscal year if you make a big donation in the current fiscal year. Hence, store the documents and receipts of the donations you make in the current fiscal year.
The Internal Revenue Service has listed seven main factors that can help in tax deduction when you are searching for a new job.
· Fees charged by the placement or employment agency are liable for taxation, if you are searching for a job when you are still working in the present field or industry. The fees are added to the gross income, in case your employer returns the amount after one year. The amount will be equal to the tax-deductible in the previous year.
· The cost of preparing and sending resume to the prospective employers is taxable.
· Suppose you have to visit another city for a job interview, the travel expenses both onward and return journey will be deducted from your travel expenses. The primary objective of the travel must be a new job search.
· Schedule A comprises of an account head titled Itemized Deductions. Miscellaneous expenses under this head are above 2% of the gross income that is tax-deductible.
Your monthly contributions to the IRA is subject to a tax credit less than or equal to 50% of the contributions; the tax credit is non-refundable. The maximum amount eligible for tax credit is $1000, based on the status of tax returns and adjusted gross income.
The Internal Revenue Service allows tax deductions on expenses related to preventive care, surgeries, treatment, dental treatment as well as treatment of vision problems. Prescribed medicines and equipment eligible for tax deductions include spectacles, contact lenses, dentures, and hearing aids. In case, you travel by car or bus to the hospital for treatment, you can avail tax deductions on the bus fare or parking fees.
However, you cannot claim tax deductions for expenses incurred on cosmetic surgeries, non-prescribed drugs, general healthcare products, charges of the health club, and non-prescribed nicotine drugs.
If you receive earnings from a deceased estate, you will be eligible for tax deductions if:
· You hold the present entitlement of the property
· You are involved in a legal tussle
· When you control the complete administration of the deceased estate.
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