Tips for Extra Christmas Cash

It is that time of year when we start thinking about the holiday season.  Many of us look forward to the preparation, anticipation, and all the sights, sounds, and tastes of the season.  But this time of year also comes with a lot of extra things to do, adding to our already busy lives.  More often than not it also brings financial stress.  It seems we either have the time or the money but never both.  So what do people do?  They look for extra jobs, cut back on the unnecessary things and worry.

There is a little known strategy that could possibly free up some money without taking a second job or tightening your belt.  It has to do with your taxes.  If you usually get a refund when you do your taxes at the beginning of the year you can adjust how much you are paying and put that money in your pocket.  Let me give you a few different ways where you can adjust your taxes and get a little extra holiday cash.

  1. If you and/or your spouse have a job working for someone else and receive a W-2 form at the end of the year, you can change your exemptions so that no federal or state tax is being withheld and that money will be added to your pay check.  So, let’s say you ordinarily claim married with 2 exemptions and they take out $600 per month in federal and state withholding combined.  You anticipate receiving a refund when you file your taxes next April.  By going in to the payroll office at your work and raising your exemptions or claiming exempt until the end of the year you could raise your take home pay by $600.  Of course everyone’s situation is different, but it is definitely worth looking into.  Also it is important to note that at the beginning of the year you need to change the exemptions back.
  2. If you are self-employed and pay quarterly estimated tax payments, this is a good time to evaluate what your tax liability will be when you file your taxes next year.  If you and your accountant determine you will receive a refund, you could lower what you need to save to pay in next quarter.  As long as you owe less than $1000 when you file your return, there will be no penalty.
  3. If you receive earned income credit when you file your tax return each year, you can ask your employer to give you an advance on some of it.  Earned income credit is a credit for people who earn under $40,000 per year and have children.  Some people receive over $5000 per year in earned income credit.  If you receive a large refund each year, talk to your payroll department and ask them about how much of an advance you qualify for.

These strategies are helpful and legal.  However, before you make the changes you should check with your tax advisor so he or she can determine approximately what your tax liability will be.  Remember, if you owe over $1000 when you file your tax return, you can receive a penalty.  For more helpful hints about your taxes, check out our resources at www.avoidbeingaudited.com.

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Deducting Taxes on Your Income Taxes?

Photo by DonkeyHotey

This week we would like to talk about how you can deduct the taxes you pay on your  on your Income Taxes, which is done on your itemized deductions.

What? Deducting taxes on your taxes? How does that work? Well, there are several different kinds of taxes that are deductible.  The first is state and local income taxes.  The taxes that are withheld from your paycheck or retirement check for state and city taxes are deductible.  Also, if you file your state tax return and you owe, the amount you pay is deductible.  Also any payments you make toward your state income taxes throughout the year are deductible.  Some states have funds that taxpayers are required to pay.  They also can be deductible.  But be aware that Federal income taxes are not deductible on your Schedule A or anywhere else on your Federal tax return.

Sales tax you pay is deductible.  Over the years this has come and gone as a deduction.  There has been talk of taking it away again but for now it is still a deduction.  There are two ways to figure sales tax.  One way is to take all your receipts for the year and add up the sales tax.  If you have purchased several high cost items you may want to try it.  An easier method is to use the sales tax chart provided by the IRS, which is included in the IRS instructions for Schedule A.  It considers what state or states you have lived in and how many days you lived in each state, and how much your income is for the year.  With this information, it calculates an average of what someone in your situation would pay in sales tax.  Most of us don’t save every receipt for every purchase throughout the year, but believe it or not, I have had a few people try it.  I have found that more often than not, the sales tax table is pretty close.

An important thing to note when deducting sales tax and state and local income tax on your Schedule A is it is an either/or deduction.  Meaning you either deduct state and local income tax paid or you deduct sales tax, whichever is greater.

Property taxes are another type of tax that is deductible.  The most common is real estate taxes.  This is the tax on real estate that you own that is not for business and is assessed according to the value of the property.  It is only the amount you actually pay or that is paid for you by your mortgage company.

There are a few more types of tax that you can deduct on your taxes.  Check out our CD/MP3 “Itemized Deductions and Gambling Winnings” To learn more about deductible taxes as well as other deductions you can be utilizing.  Visit avoidbeingaudited.com to learn more about other great resources we have! Also, if you have comments or questions, leave them below!