Tax Deductions to Save You Money

Tax breaks are the holy grail of money saving mechanisms. A tax deduction can reduce your overall taxable income, while a tax credit can reduce the amount of taxes owed. The difference is staggering. We can help enlighten you on ways to save money on taxes. The information you find here may help you to reduce your overall tax liability, or at least ensure you know what options are available for your future tax filings.


Saving Money on Taxes Means Saving for the Future

Of course, most people are aware they can setup and fund an Independent Retirement Account (IRA) tax free. In 2007, a taxpayer can stow away up to $4,500 into an IRA. The benefit being that this money does not count as taxable income, meaning a person can reduce the amount of income that is liable for tax by $4,500.

How many parents out there are dreading the cost of sending their children to college? You can put your hands down. We know the struggles of families to ensure their children are well educated, and, apparently, the government knows this as well. In an effort to offset college savings expenses, the government allows parents or grandparents to fund what is called a Coverdell Education Savings Account (CESA) with up to $2,000 per calendar year. This $2,000 effectively lowers your overall taxable income, and can save a nice chunk for use when the child begins college. The money can also be used tax free once the student begins drawing on the account. This is a win-win situation for any parents or grandparents, who are mindful of the future cost of a college education.

What if your child is in school right now? Well, the IRS allows for up to $4,000 as a tax deduction for any expenses for college in that calendar year. So if you are sending a child to college during 2006, then that expense, up to $4,000, can be deducted and lower the taxable income on your return. There are limitations to using this deduction. Publication 970 from the IRS carefully explains the limitations of the deduction. However, it is important to note that the deduction does not require itemization, meaning it can be counted without detailing where every cent went.

If you would like to read more about saving money on taxes, while ensuring a child's education, the Smart Money website has a lot of information on the subject. Also for those wishing to learn more about tax credits and how they can save you money right now on your college education, visit the About.com site to review their articles on tax credits for education.

Buy a Home to Save Money on Taxes

That is correct. A person can buy a home to save money. Does it make sense? Of course, the interest paid throughout the calendar year can be used as a deduction if a person does not make over $150,000 if married and filing jointly, and $75,000 if filing singly. This is great news for those holding off purchasing a home. Not only can they enjoy the freedom that comes with homeownership, but they can reap rewards from the government for their astute financial investment. On a low end $1,000 mortgage, we can figure that the average interest accessed will be around $600 a month. This means that, at the end of the year, a total of $7,200 can be used to lower the income tax liability, which can greatly reduce anyone's tax liability. Publication 936 from the IRS explains the process of home mortgage interest deduction. The Publication 530 released by the IRS details what can and cannot be deducted from a first time homebuyer's perspective. Take a look through the material before filing a claim or before consulting with a tax professional. Bank Rate's site offers a clear picture of how taxes will change once becoming a homeowner. Take a look at their extensive article that describes the tax liability, deductions, and credits available to a homeowner during the process.

There are other tax breaks to be had when you own a home. For instance, the Federal Government offers tax breaks in the form of tax credits up to $2,000, when doing repairs to a home to make it more energy efficient. For instance, replacing windows with double paned, energy efficient models could be accounted for as a tax credit. Be sure to keep all receipts of any home repairs performed throughout the year, and consult your tax professional before making any claims on the your tax return. To see a complete list of all home improvements considered for the energy tax break, visit Energy Star's website, where they have a detailed listing of all the possible improvements as well as a breakdown of the energy tax credit. The site will inform and educate those wanting to remodel their home, but still save money while doing so.

Tax Breaks, Tax Deductions, Oh My!

Saving money on taxes is a long winding road. One not usually paved in gold, but one that can significantly lower your overall tax burden. A new homeowner can reap the benefits of their financial investment, while parents can securely save for their child's educational future by using specific savings plans. The IRS site provides a wealth of information on the tax procedures, tax breaks, tax deductions, and can help you save money. You do not have to become a tax professional to save money, only be up to date on the information you have available to you. Even tax professionals can be in the dark about certain tax deductions, as things change swiftly in the tax world.