Lowering your tax liability is one of the fastest ways to increase cash flow and build wealth. I was making a long post about all the legal deductions that you are allowed to take and that most people miss on their tax return. Then I threw it away. There are lots of articles and resources on the internet that can give you that information and more.
If you don’t have a face to face meeting with your tax preparer then you should be using some kind of software to make sure that you are taking all the deductions that you are legally allowed to. This is a fast way to increase your cash flow and well worth your time.
What I really want to point out is that are many tax credits that people miss out on because they assume that their income is too high and they don’t qualify, and so they miss out. A tax credit is a dollar for dollar reduction of your tax.
The most common tax credits:
- Retirement Saver’s
- Making Work Pay
- Education-Lifetime Learning
- Education- American Opportunity
- Earned Income
- Child and Dependent Care
- First Time Homebuyer
- Alternative Motor Vehicle
- Health Coverage
- Elderly or Disabled
Many people fail to tell their tax preparer of these things that could help them qualify for the credits. Here are some examples:
- “I bought a hybrid car this year”
- “I got laid off and am taking courses to improve my job skills”
- “I am paying for my son’s college expenses”
- “We bought our first home this year”
- “We had high child care expenses”
- “I made retirement plan contributions this year”
Let’s take an example of the retirement saver’s credit. This is a non-refundable credit is for individual ($1,000) or married filing joint ($2,000) for eligible contributions to an IRA or an employer sponsored retirement plan (401K, 403b). The credit is phased out to 0 if your adjusted gross income is over $55,001 (married filing joint) or $27,751 (single). With so many people having spouses out of work, many people qualify and don’t know about this.
Remember a credit is not like a deduction. A tax credit is cash in your pocket now. A tax deduction lowers your overall income so your tax is lessened.
Make sure your tax preparer knows your situation. Fill out the tax organizer thoroughly. If you use software, make sure you answer all the questions about your household. Don’t leave money on the table because you didn’t have time to properly fill out the forms. To build wealth we make our money work for us so we can have a secure financial future.