It’s tax season, a time when all taxpayers are looking back on the previous year for deductions and credits to reduce their tax burden. As tax laws are constantly changing, you may find it hard to keep yourself up to speed on the current regulations. Here are five ways you could potentially save on your taxes.
Deduct a home-based office. If you use a space in your home exclusively for business (whether self-employed or working for an employer), it’s deductible. Calculate the square footage of your office and divide it by the area of your house to account for the percentage of your total home expenses that are deductible under a home office.
Gifting to children. A gift tax return is not required on gifted non-taxable assets valued less than $12,000.
Deduct capital loss. If your capital losses exceed your capital gains, you can deduct the excess and use it to reduce other income up to an annual limit of $3,000, or $1,500 if you are a married taxpayer filing separately. Capital losses can only be deducted on investment property.
Funding your retirement. Taxpayers can contribute up to $5,500 to an IRA for 2014 or $6,500 if age 50 or older. Your savings is dependent on income, but those who are in the 25 percent tax bracket and contributed $5,500 would save $1,375 on their 2014 tax bills. If a deposit is made after January 1, 2015 but before April 15, 2015, you need to tell your financial institution which year the contribution is for.
Saving for college. If you contribute to a 529 college savings account, not only does that money grow tax-free but withdrawals are tax-free as well, as long as the money goes toward higher education. Though you can’t deduct your contributions on your federal return, some states offer a partial deduction or credit on your state taxes.
At Compass, we are not tax professionals, which is why we suggest you have your taxes prepared by a Certified Public Accountant or Certified Tax Professional to ensure accuracy and your highest possible return.