Individual Tax Savings Ideas

Wage earners (W-2 form workers), the majority of Americans have only about 5 different tax deductions:

Medical (only very large medical expenses are allowed)
Taxes paid (i.e. Real Estate Tax, Auto Tax and State Income Tax, no sales or federal tax)
Interest paid (certain investment interest and interest on your home)
Charitable Contributions (gifts to churches, and to other charitable institutions. This can be actual goods, special rules for the donation of automobiles.)
Miscellaneous (job related expenses and certain educational expenses).

Looking at these 5 areas, how can you maximize your deductions and pay less in taxes? You of course could get a larger house and pay higher payments thereby increasing your deductions for interest and real estate taxes. But you will be spending more money.

If you cleaned out your attic and gave everything to the Good Will or Salvation Army the IRS will give you a Charitable Deduction for the value of the property you gave to the Good Will or Salvation Army as of the date of your gift. That is, the Fair Market Value of the Gift is deductible! Clean out your basements and attics before the end of the year and give them to a qualified charitable organization.

People who own their own businesses are really in luck. Any money spent that is "ordinary and necessary" (IRC § 162) for the operation of the business is 100% deductible, including interest paid. For example, if you owned your own business and an automobile was necessary in the conduct of that business, the cost of the auto (over a period of time) plus the gasoline, oil, repairs, car washes and interest on the loan on the vehicle are all deductible! If you have considered owning your own business, from a tax standpoint, do it!

Have you ever thought about buying a rental property? Rental properties can give you tremendous tax breaks if your income is less than $150,000.00 per year. If you own a rental condominium, for example that costs $380,000.00, the rental income is $1,400.00 per month. The monthly mortgage payments are $800.00 (interest portion) per month, the home owners association fees are $60.00 per month and the real estate taxes are $3,800.00 per year. You can deduct $2,393.00 off your earnings. If you were in the 25% tax bracket this would mean a savings of $1,748.00. If the rental property was furnished it would be even higher. In addition your asset may be appreciating in value

             +16,800.00 annual rental income($1,400x12=$16,800)
              -9,673.00 annual depreciation (assuming a land value of $114,000)
              -9,600.00 annual interest on mortgage $800x12=$9,600)
                -720.00 annual condominium monthly dues ($60x12=$720)
              -3,800.00 annual real estate taxes
               ========
              -6,993.00 your annual deduction.

Disclaimer: The information in these web pages has been prepared as a service to the community and does not constitute legal advice. This information may not apply to your situation particularly if you do not live in the state of California. Do not make legal decisions based on this material. Consult an attorney in person before making any important legal decision.