HOW to Save Taxes

Everybody is looking for ways to lower our tax bills. Following are some very
simple ideas on how to reduce income taxes. Its important that all families
take a look at these tips and see which ones can help you reduce your tax
bill.
Fund your retirement - Of course we all need to save for retirement. !ut
did you know that saving for retirement is a great tip when youre wondering
how to reduce income taxes" !y saving for retirement youre reducing your
ad#usted gross income by the amount you save thereby reducing the
income you have to pay taxes on.
Sell stocks that arent doing well - $ook at your portfolio and determine
the stocks that are worth far less than when you bought them - and then sell
them. $osses on stocks are tax deductions. If you sell them for more than
you paid then youll have to pay capital gains taxes. %hen youre trying to
figure out how to reduce income taxes dont forget to look at those stocks
that have lost money for you.
Get a mortgage - If you dont own a home youre missing one of the
biggest tax savings opportunities and its no wonder youre asking how to
reduce income taxes& 'he interest you pay on your mortgage is tax
deductible and in the first few years of a mortgage most of your house
payments go to interest so you can save a bundle.
Get a second mortgage -If you have other debts like a car loan or credit
cards and youre wondering how to reduce income taxes consider taking out
a home e(uity loan and using the money to pay off your other debts. $ike
your primary mortgage the interest you pay on your home e(uity loan is tax
deductible but the interest on your credit cards and car loans is not.
Deduct Your Childs Tuition - If youre paying college tuition you can
deduct this from your taxes too. Of course the tuition must be coming out
of your pocket not from a tax free savings account for college like a )*+
plan. If you dont have a child in college consider taking a few classes
yourself as your tuition is deductible too&
Make your home more energy efficient - %hen you re(uire new
appliances for your home such as a hot water heater be sure to look for
appliances that carry the governments energy star rating. Items purchased
with the energy star rating are eligible for tax deductions. In addition when
you replace your old appliances with energy efficient ones youll save money
every month on your utility bills.
Its compulsory for you to check your ITR yourself or hire a
Chartered Accountant. If you do not hire a ,.-. you must take some
.recautionary steps before filing a return. /o you prepare your own income
tax return to save money on preparation" If you do or you are planning on
using this method on your next return there are some things that you
should know that will help you to avoid making costly income tax errors.
Errors that can cost you some of your refund or that can cost you in time
having to amend your return and send it in again.
0ere are some income tax tips to help you get started1
2. ,heck for errors in your personal information on the income tax return
such as your .-3 number address !ank -ccount 3o.
*. 'ake the most beneficial deduction. /epending on your circumstances
either the standard or itemi4ed deduction may keep more money in your
pocket. 5ou should do the worksheet in your income tax instruction booklet
to see which one would be best.
6. If you have a home office you can deduct a percentage of your mortgage
interest as well as your utilities and other things you may have not thought
of as business expenses.
7. /ont forget to take any medical expense deductions that you have
available. If your employer takes out your health insurance after taxes
and you can take this deduction. Include dental and prescription costs as
well.
). 8ake sure that you have all of your forms before you file your income tax
return. 'hink about any extra #obs or pay you may have received as well as
interest you have accumulated.
9. 'ake your state and local income tax deduction from the previous years
returns.
:. ,heck the return at least twice for any math errors even if you are using a
calculator. 'hese can be very costly and are easy to miss.
;. /ont forget to get all of the necessary signatures on the return. If you
are married filing #ointly you will need both spouses to sign.
+. ,onsider using tax preparation software. It is more accurate than self-
preparation and it can be easy to use and understand and it will check your
return for errors for you. 5ou can also get free or low cost tax preparation
through the Income tax return .reparer if you have a low or moderate
income.
The first option to save money that comes in everyodys mind is to
someho! reduce the tax urden"
It is very essential to know in detail about the tax laws. For instance if you
are into a small business you need to know the tax laws pertaining to a
small business.
If you are a business owner bear in mind that you ought to be strong at
managing the accounting systems and also at tax planning.
0ere are the steps you should follow to save the tax burden1
< -s per the law your tax liability can be reduced if you hire your family
members to work in your business. In order to convert high tax rates to
lower ones you will have to pay your spouse or your children for the work
they have done.
< Ensuring that you meet the I=>s criteria try to hire independent
contractors instead of employees. 'his will help you to save on payroll taxes.
< -nother option is to go for a ?deferring income@. For this receiving money
should be postponed to Aanuary instead of /ecember. 'hus you can prevent
the payments received from being included while tax is calculated.
< >imilarly in order to take advantage of tax deductions allowed for
charitable donations make sure all your donations are made in 3ovember or
/ecember but not in Aanuary.
< Expenditure on e(uipment and office supplies if maximi4ed can help you
to get tax rebate.
< 'ry to include all the business related travel in the current fiscal year.
< 3o bill should be due. 8ake sure all payments are done much before the
year ends. 'his is helpful as the payment that is made to cell services rent
insurance and utilities related to the business can be included for applicable
tax waivers.
< Ensure that money paid to licensing fees businesses taxes annual
memberships to businesses related organi4ations etc. is deducted from your
taxable income. -lso the insurance premiums and machinery are eligible for
tax deductions.
< 'he management and administration expenses as well as money spent on
maintenance and repairs are eligible for a rebate.
< Finally as the tax deductions are different for different accounting systems
that you use in your business choose between cash accounting system and
an accrual one.
Thus# there are a numer of !ays in !hich you can save money and
reduce the tax urden"
1. ee! all "usiness related recei!ts. IF you purchase something
re(uired for your #ob and are 3O' reimbursed by your employer that item
may well be deductible for you as a B#ob related expense. -s a matter of
habit keep all receipts for #ob related expenses.
#. $e aware of all deduction o!tions. %hen you know what deductions
you can take at the beginning of the year you are more likely to save money
later in the year on your tax debt. Aob related travel safety deposit boxes
and more are deductible if you choose to itemi4e.
%. Dont loose out on ta& credits. 'ax credits are created to benefit those
who have unusual expenses during the year that are not legally deductible.
Csing the tax credits provides a benefit of returned cash for your expenses
when you (ualify.
'. Consider Ta& Free (n)estments. %hen investing money for retirement
or education benefits consider a 'ax Free Investment. 'he lower value of
returns may balance out on reduced taxability of the investment.
*. Take a loss. Occasionally the pay off for selling an investment at an
apparent loss can result in dramatically reducing your tax debt gaining a
benefit of less money spent and more money gained. 5our 'ax ,onsultant
can guide you but will need your 'ax information prior to the end of the
year.
+. Charita"le Donations. 8ore than money your donations to charity are
deductible. If you donate clothing furniture or other merchandise to a
recogni4ed charity get a receipt and use the receipt as a deduction on your
taxes. 8ileage driven for charity is also deductible.
,. Gifts - gi)ing sa)es you money. If you are retired and your children
are due to inherit a large sum of money gifting them the maximum
allowable amount each year is often preferable to maintaining a huge estate
and paying estate tax. ,onsider gifting your children and allowing them to
en#oy their inheritance early. D5our tax consultant will have other options for
saving your retirement tax moneys also.E
.. Ma&imi/e your 0etirement Contri"utions. If youre in that Bother
category too young to retire too old to have children for deductions its
often recommended that you maximi4e your =etirement ,ontributions. 'his
contribution can save you money anytime and provide a viable option for
retirement.
1. 2ut children on the !ayroll. For legitimate expenses if you pay your
children Dover 27E for deductible expenses pay them a check and pay taxes.
-llow them to pay their own expenses with money they earn.
13. Dou"le4check your Ta& Documents. 8any errors are made on tax
documents that would save you money if caught before taxes are filed. EFE3
if you have a competent 'ax ,onsultantG.reparer doing your taxes double-
check numbers placement of numbers and items on your tax documents
for correctness. -ccounting errors can cost you money.
0aving a 'ax .reparer who willingly offers information about your 'axable
Income and /eductions provides far better service than a minimum service
whom you pay less but end up paying more in taxes. ,onsider the
additional amount you are paying in taxes without (uality consultation when
considering your 'ax ,onsultants Fee.
Some Tax Savin$ Tools
2. 56uity 7inked Sa)ing schemes 1
E$>> is an instrument sold by mutual funds for the specific purpose of
enabling taxpayers to save their taxes. 'he proceeds from E$>> are
mostly invested in the stock market so that the investors get the benefit
of appreciation in stock prices thereby making the stock market work for
investors. 'he tax deduction for E$>> is available under section ;H, of
the Income 'ax -ct 2+92 and the maximum amount invested in E$>>
which will (ualify for tax deduction is =s 2 HHHHH in any one given year
sub#ect to the amount invested in other instruments (ualifying for such
deductions. >ome of them include !irla 'ax .lan +; Franklin India 'ax
shields D+: +; ++E >!I 8agnum 'ax gain etc.
*. 7ife and Medical (nsurance 2lans1
$ife Insurance .olicies have long been the most popular tax saving
instruments among tax payers. Insurance policies offer twin advantage
for tax deductions on premium paid and insurance cover for the insurer
and his family in the event of a financially debilitating event such as
accident death etc.'he premium paid on life insurance policies (ualify
for tax deductions under section ;H, sub#ect to a maximum of =s.2 lakh
per annum.8ost companies offering $ife Insurance also offer medical
insurance policies as well as pension plans which offer tax deduction
under section ;H/ sub#ect to a maximum of =s.2HHHHDrs.2)HHH for
senior citi4ens above 9) years of ageE in a year.
6. 8ousing 7oan1
'he tax deduction on both the principal and the interest paid Dduring the
financial yearEon the loan is available .'he maximum deductible on
account of interest paid on housing loan during the financial year is
=>.2.)H $-I0 C3/E= >E,'IO3 *7D!E %hile the maximum amount
deductible on account of principal repayment of housing loan is =s2 $akh
under section ;H,.0ence a tax payer who has taken the housing loan is
eligible for deduction of a maximum amount of rs.*.)H lakh on account of
principal repayment and interest paid on housing loan.
7. 2u"lic 2ro)ident Fund1
'he contributions made to the Employees provident fund DE.FE and .ublic
.rovident Fund D..FE are also eligible for tax deductions under section
;H,.%hile the contribut9ion paid to E.F by the employees are sub#ect to
the overall ceiling of=s.2 $akh under section ;H,.'he contributions made
to ..F are sub#ect to a maximum of =s :HHHH under section ;H,.
). 9ational Sa)ings Certificate1
It can be bought at any post offices in the country. %hile there is no
upper limit for investment the tax deduction on 3>, is available sub#ect
to overall limit of =s.2 lakh under section ;H,.'he tenure of investment is
9 years and the rate of interest is ; percentDcompounded half-yearlyE.
Cnlike investment in ..F no premature withdrawal of the amount is
permissible in the case of 3>,s.
9. Term De!osits and $onds1
8any of the commercial banks have fixed deposit schemes which (ualify
for tax deductions. 'hese deposits have a lock-in-period of five years and
a coupon rate of ;-+ percent. Investments in these deposits are sub#ect
to the overall ceiling limit of rs.2 lakh per annum under section
;H,.Eg.Infrastructure bonds floated by government and public sector
companies.
'here are other specified expenses such as registration charges and
stamp duty paid on house property tuition fees for childrens education
among others which (ualify for deductions under section ;H,. Cnder
other sections expenses like conveyance allowance food coupons etc
also (ualify for deductions. 'here are also special deductionsGconcessions
for senior and disabled tax payers.