Tax Refunds & Advice

The last thing you want to do when filing your taxes is draw attention to your return. Unfortunately, thousands of people do this every year with the deductions that they claim. While there are quite a few legitimate deductions that you can use to your advantage, there are many others that the IRS watches closely. If you wrongfully claim these deductions, you are throwing up a red flag and simply asking for an audit.

Do you work from home? If so, a home office deduction is within your rights. But with that being said, the space that you claim needs to be regularly and exclusively used for business purposes. In other words, if your home office is also in your bedroom which doubles as a laundry room, you would be best suited forgetting about this deduction.

Year in and year out, many taxpayers try to deduct 100 percent of their car related expenses because they claim that it is used for business purposes. While this may be true, you need to be careful about how much you claim for business use. For example, if you drive 20,000 miles per year but only 5,000 are for business, you can only deduct 25 percent as an expense.

If you are unsure of which tax deductions are legitimate and which ones you should avoid, you should definitely see a professional. The two tax deductions above, as well as many others, will throw up a red flag right away. In turn, your chances of being hit with an audit greatly increase. Is that something you want to deal with just because you think you can stretch the truth to save a few dollars?

Although you only have to file your income tax once a year, you should be thinking about deductions day in and day out. Okay, you don’t want to overdo it, but you should definitely formulate a tax deduction strategy sooner rather than later. When you know what you can and cannot deduct, it will allow you to make changes as the year goes by. This way, you can maximize your deductions while ensuring that you will not owe Uncle Sam any additional money.

First things first, make a list of common tax deductions that you incur each year. This includes old time favorites such as mortgage loan interest, student loan interest, home office space, and charitable contributions. Believe it or not, many taxpayers forget to keep track of these deductions, and when the end of the year comes, they simply guess or leave them out altogether. By doing this, you are giving money to the IRS. Is that what you are trying to do?

Next, consider the deductions that you may be able to add for the upcoming year. As mentioned above, most charitable contributions are deductible. The nice thing about these is that you can control when and how much you donate. If you want to give your tax situation a boost, while also helping a good cause, you should consider donating to a charity or two throughout the year. Remember to closely keep track of all charitable contributions, no matter how big or small.

The bottom line is that a deduction strategy can help to lessen your tax burden. If you formulate ideas early in the year, when it comes time to file you will be well ahead of the game. For many, this results in a nice rebate from Uncle Sam!

Although there is nothing wrong with donating cash to your favorite charity or organization, there are other options that you can consider. For instance, have you ever looked into donating stock instead? Believe it or not, donating securities over cash contributions is becoming more and more popular. While this process may not be as well known as simply donating cash, there is not much too it if you are willing to learn.

Donating appreciated stock offers many tax advantages. But in order to take advantage of all these benefits, you need to first look into a few details.

First things first, look into how long you have held the stock. Is it more or less than one year? Most people know the answer to this question off hand, but if you do not, find the answer right away; it is very important as you move forward. Next, find out the fair market value of the stock. This is the amount of cash that you would receive if you were to sell the stock on the spot.

The amount of time that you have held your stock will determine the benefits that you can take advantage of. If you have held the stock for less than one year, you can deduct the fair market value at the time minus the appreciation since you purchased. For instance, if you bought stock for $1,000, kept it for less than a year and donated when it reached $1,300, your deduction would equal $1,000.

On the other side of things, if you have held the stock for more than one year, your situation will be entirely different. In this case, you should be able to deduct the entire market value.

Donating stock is not as difficult as you may think. Generally speaking, all you have to do is transfer ownership of the shares that you are interested in donating. While it is not quite this simple, your stock broker can lend some assistance.

The next time you think about donating cash, make sure you first consider the tax benefits of donating stock instead.