Taxpayers are always looking for ways to save money. Especially in a declining economy, citizens are eager to do all they can to stretch their funds. There are several things that taxpayers can do in 2012 to minimize their tax liability. This article will take a look at five tax secrets that every taxpayer should know.
Report Income Now
While experts will generally tell you that it is not a good idea to report income before you have to, the impending tax rate increases may change that train of thought. Current legislation suggests that tax rates will increase in years 2013 and beyond. That means taxpayers will pay less tax on that income in 2012 than they will in future years. So, if it is possible to report the income earlier, do it now.
Roth IRA Conversions
In recent years, most people have become familiar with the Roth IRA. It is an individual retirement account whereby its earnings are not subject to income taxes. Roth IRA’s has both a good side and a bad side. Their good side is that as the funds increase value over time, the individual is not taxed on those earnings. The bad side is that the individual is taxed on the entire contribution into the account.
Therefore, in 2012, if individuals decide to either contribute to a Roth IRA or convert a traditional IRA to a Roth IRA, they will be paying taxes on that amount and should take that into consideration in their tax planning. In 2012, the IRS introduced a feature that will allow taxpayers to spread the tax liability incurred due to a Roth conversion over two years.
Job Hunting Costs
The current economy has many Americans looking for a job. Many people don’t realize that costs associated with finding a new job are deductible as long as these, combined with other miscellaneous deductions, exceed 2% of your adjusted gross income. These costs can include professional resume services, fees paid to a placement agency, printing costs, travel expenses, and phone calls.
Child Care Credit
Most taxpayers that pay for child care are very familiar with the credit that they are able to include on their tax return. However, many taxpayers forget about certain summer activities that also qualify for this credit. If a child is involved in a camp or other activity that is meant to occupy the child while the parent is at work, then that cost can be included when determining this credit.
Everyone knows there are significant benefits to higher education. But, the benefits even extend to your tax return. The deduction for tuition and fees can reduce a taxpayer’s taxable income by up to $4000 regardless of whether or not they itemize. There are also a number of credits that students or their parents can qualify for, including the Lifetime Earning Credit and the American Opportunity Tax Credit. These can also reduce the taxpayer’s liability by up to $2500.
Minimizing the amount of tax paid to the Internal Revenue Service can be a confusing process. By becoming educated on the details of various deductions that apply to the taxpayer, we can enjoy significant savings on our tax liability. Just don’t forget that each year there can be significant changes, so keeping up to date is crucial.
Neil Davis is a tax consultant and in his spare time blogs for workingtaxcreditcalculator.co.uk a site which can help you stay up to date on changes to working tax credits you can either use their tax credit calculator online or you can simply call their working tax credit phone number!