Find Out How to Save Money on Taxes
December 22, 2018
It’s that time of year again – when we all start the search for how to save money on taxes. There’s no threat of filing late ... yet. But the process all Americans go through in the first few months of the year – has a history that began over 100 years ago.
In the beginning there was no tax deduction list.
It all started way before our time, according to an article on the IRS website. From the beginning of our nation – 1776 until 1802 – Americans paid few taxes. Mostly the government received funding through taxes on goods such as sugar, liquor, carriages and tobacco, and another sales tax was instituted during the War of 1812 to offset costs of fighting the British.
During the Civil War, there was an office of Commissioner of Internal Revenue established and income tax was instituted by Congress in 1862. Nothing like our system today, only employees with an annual income between $600 and $10,000 paid taxes – at a rate of just 3% – plus those with earnings above $10,000 paid taxes at a higher rate. If citizens didn’t pay the taxes, the Commissioner could seize assets, including income or property.
Income taxes got closer to what we do currently, where we pay attention to things like charitable donations tax deductions and look for how to save money on taxes in other ways, when it became a permanent system in 1913. The 16th Amendment enabled Congress to assess taxes based on the incomes of residents and corporations. The annual tax collection totaled more than $1 billion by 1918, and two years later it exceeded $5 billion.
When Ronald Reagan was president there were changes made to the tax code. The Tax Reform Act reduced taxation of individuals and increased the burden on businesses. President George W. Bush made one of the biggest tax cuts in our country’s history in 2001. It created a low-income tax rate of 10% and increased the tax credit for children, plus made adjustments to the tax structure for married couples.
The laws are constantly changing, which makes it challenging for the average citizen to maintain a full awareness of the tax structure such as the current charity tax deduction. But even as April 15 comes near and we don’t feel we’ve done all we could in the last calendar year, there are experts we can turn to for help with our charitable donations.
There are many tax preparation services to help you with your tax deductions.
If you’re the DIY type, you may be a Turbo Tax “regular.” First developed in the 1980s by Michael A. Chipman of ChipSoft, Turbo Tax became a hugely successful fintech company, acquired by Intuit a decade later.
It’s definitely the route a lot of savvy taxpayers choose who know how to save money on taxes. You need to re-purchase the online software each year. And while mailed-in paper tax returns take about 6 to 8 weeks to process (once the IRS gets your return), e-filed tax returns typically get processed within 21 days. So, it’s a much better prospect, as far as speed goes!
TaxACT offers a range of online products to calculate your own taxes. So if you're a college grad who's new to the process or a grandparent who knows the ropes, you have options.
There’s a basic service that’s free, and several other levels:
• Basic costs $9.95 and covers individuals filing who have dependents and college expenses, etc.
• Deluxe is a $29.95 option and includes homeowners, those with deductions, credits and adjustments.
• Premier costs $34.95 and is designed for filers with rental properties or other investments and offers prioritized support.
• Self-Employed service is the most expensive, at $49.95, and has a “deduction maximizer” with tax resources for the user year-round.
TaxAct guarantees 100% accuracy in your tax return and backs that promise with $100,000.
But, do you sometimes feel you need a tax deduction guide? Many do.
There are sources who know how to save money on taxes and are trained to counsel clients in the best decisions toward that goal.
H&R Block is one of the best-known tax preparation companies in the country, having been in the business since 1955. Brothers Henry and Richard Bloch founded the powerhouse, which is run in various communities by franchisees.
That local ownership has contributed to the company's reputation for serving families from generation to generation.
In addition to offering tax filing help, H&R Block has courses you can take so you can become a tax preparation pro too. There are several tax tools on the website, plus a number of levels of tax filing assistance. They range from free filing to self-employed online tax filing, plus in-office appointments are also available.
Any of those options can help you with the charity tax deduction aspect. You should be able to find the right formula for how to save money on taxes – with a little help from your friends.
Tax deductible donations are available for every type of taxpayer.
We all know tax deductions are good, but we may not truly understand how they work. And in order to find out how to save money on taxes, we need to know where and when they’re applicable.
Tax deductible donations lower a person’s taxable income. You begin with the total gross income and apply each of your deductions, which are defined as certain expenses that subtract from that total.
The money used to purchase both required coursework materials (books, computer software, etc.) and non-required materials (notebooks, backpacks, pens) may be eligible as tax deductible items.
Of course, regulations change, which is why you need to either pay attention to small print or hire a professional who knows how to save money on taxes to prepare you for filing.
You can gain a benefit known as the Lifetime Learning Credit, which is a tax deduction with some particular elements. This applies to you if:
• You pay qualified expenses for higher education
• You pay the expenses
• You are the student, the spouse of the student, or the parent of the dependent you file for
Teaching professionals can deduct up to $250 of unreimbursed expenditures from the purchase of classroom materials. Examples of items that can be deducted include books, stationery supplies, professional development merchandise and computer software.
If you pay for most of your kids’ living expenses, children may be listed as dependents on your tax return. If you’re financially supporting them, you may be eligible for up to $4,000 in exemptions for your taxable income.
Other articles used by parents, including breastfeeding equipment and supplies, may be used to exceed the 10% medical deduction thresholds.
Believe it or not, there are actually circumstances where you can write off payments to a babysitter. The federal tax court explains that you can list babysitting services as a charitable contribution only if you needed childcare while
performing volunteer work.
Last year, if you completed a form with itemized deductions, you could deduct as much as 10% of your income. But if you are self-employed, you may be able to deduct up to 100%. Again, check to see if these regulations have changed.
Charitable giving equals receiving – a tax benefit.
Though consumers may joke about real money being obsolete, most 501(c)(3) charities accept cash donations. Some financial planning experts suggest operating with a budget that takes a fixed amount of your paycheck out for charity giving first – before proceeding with bill paying.
It might sound crazy to carve charitable donations tax deductions into your budget – and to take that right off the top – but it’s a financial modus operandi that’s a part of some popular programs.
Personal finance guru Dave Ramsey suggests the Judeo-Christian “tithing process,” where 10% comes out of your gross income, designated for a nonprofit, such as a place of worship. He is world-renowned for offering instruction in how to save money on taxes and in every other aspect of the budgeting process.
To those who feel it’s an impossible task to not have access to all of your take-home income, Ramsey poses the question – “If you cannot live off 90% of what you make, what makes you think you can live off 100%?”
His precepts have been outlined in seven best-selling books, including “The Total Money Makeover” and “Financial Peace.” He largely advises individuals who have found themselves in a financial crisis due to medical bills or other unforeseen expenses.
One of the biggest goals of his program is to encourage individuals and couples to become debt-free, which then makes it more possible for them to make tax deductible donations.
Ramsey has “7 Baby Steps to Financial Freedom,” and the final step is “Build Wealth and Give” which he points out is the most fun stage in the process. Charitable giving isn’t about moving money, he says. It’s the realization that others are less fortunate and the importance of developing a desire to help them.
Ramsey has a blog talking about the vast financial loss to Americans when they don’t take advantage of the tax credit they’re allowed. He says that 2 million American taxpayers overpay the IRS every year, totaling a billion dollars. The finance expert says that 27% of taxpayers fail to take their rightful charitable donations tax deductions.
Learn how to save money on taxes through non-cash charitable gifts.
Even Ramsey admits that especially in the beginning stages of establishing a budget, his tax deduction guide would include something other than cold, hard cash. He suggests getting creative and finding alternate modes of giving, such as knowledge, time or service to help others.
Have you cleaned out a closet and taken a load to the local thrift store recently? Depending on the size of your home, condo or apartment, it’s a good idea (for your sanity alone) to do that several times a year. Of course, don’t forget to accept a receipt for your records!
A couple of years ago, says environmental nonprofit Planet Aid, Newsweek had an article with a statistic claiming that Americans throw away about 14 million tons of clothing each year, which is about 80 pounds per person.
And well into the 21st century, stats show that Americans throw more than 80% of our old clothes in the trash.
What about your other things? Chances are you have toys and games in the closet with a pile of dust on them. If your son is in his teens, he won’t be picking up his “Teenage Mutant Ninja Turtles” weapon anytime soon, and chances are you don’t have an 8-track player to hear your Barry Manilow tapes either.
One of the best ideas when you want to know how to save money on taxes is to donate a car to charity. It’s an everyday item that practically everyone has, and at times you probably dream of an upgrade, a downgrade, or simply finding a vehicle that meets your needs better than your current vehicle.
If fiddling around with finances isn’t your bailiwick, don’t worry, because many of us understand the process of supporting the charity you wish while also garnering your charity tax deduction. At Cars2Charities, for instance, we literally handle the entire process, from towing away your vehicle donation to completing the paperwork, including the title transfer.
With a car donation to charity, you typically just turn it over to the company that’s processing your gift. For instance, when Cars2Charities gets an online donation or a call, we arrange a time for pickup and tow it to one of our technicians, who assesses it for possible alterations.
Not only is the value of your vehicle transformed into support for the charity of your choice, our process tends to raise the selling price of your car by about 25-50%. And because your tax write-off is based on the selling price of your car, it makes your tax break stronger.
You don’t have to be rich to score on your taxes. The truth is, when you look at the particulars regarding how to save money on your taxes, it’s actually very simple – don’t neglect the potential to pay less to the IRS by not participating in charitable giving and accessing your charity tax deduction.
Downturns in the economy can kill a nonprofit’s ability to survive. If you think about it – not only do consumers have less money to give to charity, the demands on their services typically rise. Meeting the needs out there with dwindling budget numbers plagues many charities, possibly one of your favorites.
Though America has been recovering from the recent Recession, there are still unmet needs out there.
If you want to give a car to charity or simply fund a 501(c)(3) directly, there are many to choose from – more than 1.5 million in the United States, to be exact. You can consult a tax deduction list of charities if you need ideas, but chances are you’re already involved with some nonprofit entity. Your child could be involved in Scouting or you could be a member of PTA. Or you may choose to give to your non-profit gardening club or performing arts group.
If you need more detailed information, it’s available here.
The prospects are really wide open, as your bottom line benefits whether you’re donating to veterans, rescuing animals or you’re throwing it in the offering plate on Sunday mornings. When it comes to how to save money on taxes, giving to charity is a winning way to achieve it. All it takes is a little creativity and attention to resources available to you.