Lowering your tax liability

Industry analysts are predicting that a tangible change in the economy won’t be seen until mid-2010, but there are still some things you can do to lessen your tax liability this year.

• Contribute more to a 401k. Any amount you can contribute to a 401k subtracts from your tax liabilities. Taxpayers can contribute up to $ 16,500 if they are under 50 years old and $ 22,000 if they are over 50 years old. There are still a few months left to increase contributions and cut down on taxes.

• Think about home ownership. It’s a buyer’s market and with a tax credit of up to $ 8,000 for first-time homebuyers from January 1 through April 30 of 2010, now is the perfect time to buy.

• Pay for a college education. The federal stimulus plan created tax breaks for college expenses. The American Opportunity Credit replaced the Hope Credit, and lowers tax liabilty for taxpayers to meet certain requirements.

• Get a new car. The stimulus plan also included a tax break for new-car purchases. Anyone buying a new car this year can deduct the state and local sales taxes and/or excise taxes on a sticker of up $ 49,500. Car.com expert Miles Bradman said, “This is the perfect time to get a new car and not just from the purchase price standpoint. In former years a consumer may have needed a large loan to cover a down payment, whereas now small unsecured personal loans could very well do the trick.”

• Give to charity. Taxpayers who itemize deductions can sometimes write off charitable contributions. Industry analyst Martin Berg of Money.com stated, “A lot of people forget to count their cash gifting when calculating donations. Always include noncash donations, appreciated stock, and cash. They can also count out-of-pocket costs to help a charity like 14¢ per mile in travel costs to do charitable work.”

• Self-employed tax breaks. For self-employed there taxpayers are many additional ways to decrease taxes. Costs of equipment, such as fax machines, computers, or printers, can often be deducted, along with any home office expenses, like rent, homeowner’s insurance, and utilities.

• Medical Expenditures. For those who itemize deductions, medical expenses can lower a tax bill substantially. Taxpayers qualify for this deduction, if their medical expenses exceeded 7.5% of adjusted gross income. Tax experts recommend keeping track of medical bills, and keep them on file until tax season rolls around.

Use the various deductions wisely

In the end, it is possible to decrease tax liability by using any or all of the above tools. Any taxpayer thinking they might be staring down the barrel at a huge tax liability for 2009, is well served to know what the rules concerning deductions are. They can make the difference between having to come up with a substantial amount of money, breaking even, and even getting a refund.

Before you make any decisions concerning tax reporting or the claiming of tax deductions, be sure to get advice from an experienced tax professional.