Understanding Tax Deductions

Most people complain of high taxes and very few of them take time to  read about tax deductions let alone understand what tax deductions or online tax returns are or  how they are executed and the dark mythical cloud that surround them. To dispute the conspiracy that surrounds this Tax Deductions  take time to read this article and more freely available information on the same all over the internet and this website.

Tax deductions by definition implies the amount payable to the tax authority from ones salary. This is a simple definition but take time to digest it further. For every income that is earned by individuals there are amounts that are deducted from this income to go to the tax authorities or the government at large. Therefore tax deduction are not fixed but vary with the amount of income that a individual earns. A positive correlation exists between the amount of tax deductions and Income. The more one earns the more taxes they are likely to pay In an ideal situation.

Every taxpayer is legally responsible to pay an amount of  tax which is subtracted from his/her gross income each month. As earlier mentioned the amount of taxes levied on the individual income depends on the income It is important to find out the amount of deductions that the local tax department levies on your income class to have a clear revelation of tax deductions. The positive phenomenon is that the tax deductions reduce the taxable income
In other enterprises such as large organizations the financier is responsible of tax deductions. The founders of such organizations calculate the tax deductions expenses and are suppose to incorporate them in the budget. In cases of real estates the tenants may at times bare  the tax deductions expenses incurred during the construction of the house. It is therefore important to understand tax deductions before you believe the stereotype myths about tax deductions out there. These people however usually file a tax return online unless they have a CPA prepare the necessary forms for them.

Health Insurance Coverage Saves Tax

Another way to get some tax free disposable when you file your 1040 online is the way your employer structures your salary. When you efile  taxes online or in the old way, think back and study your salary structure paid to you by your employer.  When you are filing your 1040c this structure has an effect in determining how much of your income is taxable. One way to save tax is through the tax benefits that your employer is giving you. Your tax premiums paid by the company can save tax for both you and your company.

Health and hospitalization insurance premiums paid by your current or former employer are tax-free — a huge benefit. Let’s say your health insurance premiums come to $280 a month, or $3,360 a year (for an HMO policy for a family of four with a $1,500 deductible). If you’re in the 25% tax bracket and have to pick up the bill, the real cost to you would be $4,480. That’s $3,360 for the premiums and $1,120 for additional income taxes because you’ll be paying for the coverage in after-tax dollars. Having your company pick up the cost helps both of you. It doesn’t have to pay the salary necessary to get you even. It gets to write off the full cost of the coverage. Plus, neither of you has to pay the 7.65% payroll taxes on the premiums. And you, of course, boost your disposable income substantially.

Education has its advantages; Tax saving?

There is no limit to the age for getting educated. No matter how old you are, it is always a good time to get some kind of education for yourself so that you can be more literate. And the good news with this is that when you e-file your 1040 or e-file  1040EZ form, this education can help you to save precious money by saving on tax. And I am not saying that if you are better educated you will be able to better understand your online tax return filing or how to fill your 1040 form. Here is how.

When you enrol in a course when you are working for your employer, you have the chance of saving money in terms of tax by getting your employer to pay for it. The course does not even need to be related to your job. All that you have to do is to make sure that the education cannot involve sports, games or hobbies. Your company can pay for this course, and can deduct as much as $5,250 per year in educational assistance paid for either undergraduate or graduate courses. And this assistance that you get from the company comes to you tax free. Thus if you have been putting off your plans for enrolling into a course just because of financial reasons, think again. Getting this education will make you smarter not just cause of the learning that you get, but you will feel smarter because you save on the tax when you e-file your 1040 online.

Can you save taxes by filing online?

With a large number of people going for online tax return filing it is much easier now to keep statistics properly. Whether you want to file your 1040 online or by the old way, you probably wonder how you can save some tax. Former IRS Commissioner Charles O. Rossotti said once, ”people who make more than $100,000 pay more than 60% of the taxes, and we need to focus there.” Thus if you are making more than $100,000 a year then the risk of an audit is higher for you and it’s important for you to keep adequate records to substantiate your returns. It also reinforces the benefits of income allocation. That’s where you view your family as a single economic unit, obviating the issue of who actually generated the income. You can then, within the law, allocate income from a higher bracketed family member to a lower bracketed one, and save the difference in tax dollars. Putting investments in a child’s name makes the income generated from those investments taxable to the child, rather than to the higher bracketed parent. Be aware of the “kiddie-tax” rules on investments and the issues relating to how to structure the investments so that they’re taxed to the child. For 2009 the child was allowed to have $1900 in earned income, nonwage income such as dividends or interest on investments. There was no tax for $950 for the child, the next $950 was taxed at the child’s normal income tax rate (10%-15%), after that the kiddie tax kicks in.