Everybody wants to lower their tax liability. However, many people believes that only the rich can save money on their taxes; but, anyone can reduce their tax liability. There are several ways to reduce your tax liability. Four methods to reduce your tax liability are:
1. Keep track of your doctor, medical, and pharmacturical receipts.
If you use Schedule A, you can deduct any expenses over 7.5% of your gross income for medical and health insurance.
2. Mortgage interest deduction
Mortgage interest is deductible. Mortgage interest deductible but the deduction becomes limited with a residence loan value of $1,100,o00. There hss been additional discussions in Congress to limit the deduction further.
3. Charity contributions
Charitable 501(3)c or religious organizations donations can be deductible. The charitable contributions are limited to 50% of your Adjusted Gross Income. However, there are some cases where it depends on type of property given to charity that 20% and 40% limitations will apply. If the amount of the charitable contributions is limited, the excess amount can be carry forward five years until it is used up.
4. Contributing money to a traditional Individual Retirement Account or SEP
Contributing to an IRA not only allows you to save for your taxes; but, it also can lower your tax liability. You can contribute up to $5,000 or $6,000 if over 50. The contribution becomes phased out if you participate in a retirement at work out in 2012 at $58,000 – $66,000 for single taxpayers and $92,000 – 112,000 for married couples. If you don’t participate in a retirement plan at work the phaseout for married filing jointly is 173,000 – 183,000. There is no income limit for single taxpayers who do not participate in a retirement plan at work.
The self-employed or small business owners can contribute to their Simplified Employee Pension (SEP IRA) plans. In 2012, the SEP IRA contribution limit is $50,000 or 25% of the employee salary whichever is smaller. Only the first $250,000 of income is considered for determining the SEP contribution calculation. Depending on when you begin contributing to your SEP IRA, your contributions may be limited further. Unlike a regular IRA, any contribution made to a non-deductible SEP IRA contributions subject to penalties are high. Any excess contribution you make to a SEP IRA needs to be withdrawn.
You don’t have to be rich to lower your tax liability. It just takes tax planning. IRA contributions, SEP contributions, charitable contributions, mortgage interest deduction, medical expense deduction are just four methods to lower your tax liability. I don’t know of anyone who would like to lower their tax liability by using tax planning. Do you?
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