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Basic Tax Reduction Tips. - CoinEDGE

Basic Tax Reduction Tips

  • Tax exemptions

    1. Single taxpayer – claim personal tax exemption for yourself; If listed as a dependent on someone else’s tax return, you are not allowed to file personal tax exemption.
    2. Married taxpayer filing jointly with spouse – Only applies if a joint tax return is filed with the spouse. Neither can be listed as dependents on anyone’s tax returns to qualify.
    3. Married taxpayer filing separately from spouse – You can only claim one exemption. You may claim personal exemption for the spouse if they do not file a tax return because there is no income for the tax year.
    4. Head of household taxpayer
      1. Unmarried as of the last day of the year
      2. With a qualifying dependent child living with you
      3. Must have paid more than one half of the expenses to maintain the household during the given tax year
    5. Taxpayer with children – you may claim dependent exemption for each child, stepchild or foster child you support. The child must:
      1. Be < 19 years old (if student, must be < 24 years old)
      2. Have lived with you for more than half of the year
      3. Not have provided more than one half of their support for the year
    6. Taxpayer with other dependent relatives – you may claim a parent or sibling as dependent relative.
      1. If their gross income < $4,050
      2. If you provide more than one half of the relative’s total support for the year.
  • Tax deductions

    1. Main types
      • Standard deductions
        1. For a single taxpayer and for married taxpayer but filing separately = $6,300
        2. For married and filing jointly taxpayer and qualifying widow or widower = $12,600
        3. For head of the household taxpayer = $9,300
      • Itemized deductions – you save more money on taxes if you itemize your deductions and list them on Schedule A of your tax return.
  • Top personal tax deductions

    1. Mortgage interest and property taxes – Deduct mortgage interest that you pay on a loan secured by your primary residence or a second home.
      • You must be obligated to pay the debt and actually make payments.
      • You can deduct taxes you pay on real estate you own that is not use for business.
    2. Charitable donations – cash or non-cash contributions to a qualified non-profit organization.
      • You need documentation for cash contribution including contributions < $250.
      • For non-cash contributions (property) and cash contributions > $250, you must have receipt or acknowledgement from the non-profit organization.
      • For non-cash (property) contributions > $500, file an extra form with the tax return, Form 8283 Noncash Charitable Contributions.
    3. Medical expenses and health savings account – Deduct the amount of medical and dental expenses that exceed a certain percentage of adjusted gross income.
      • If you have qualified Health Savings Account, you can deduct the contributions to the account and you do not have to tax on interest you earn from the account.
    4. Child and dependent care – Claim tax credit for expenses if you have to pay someone to care for a child (under 13) or a dependent needing care so that you can work.
      • The tax credit is a percentage, ranging from 20% – 35% of the income, of your eligible work-related child or dependent care expenses.
      • The dollar limit on the amount of expenses for which you can claim credit is $3,000 of the expenses paid in a year for one person or $6,000 for two or more.
      • Reduce dollar limits by the amount of dependent care benefits provided by the employer that you exclude from your income.
    5. 401(K) and IRA contributions –
      1. If the employer offers 401(K), it pays to maximize your contributions.
      2. Maximum contribution is $18,000 (2017 and 2016)
      3. If you are 50 or older, you can contribute an extra $6,000 per year.
      4. For IRA’s you can contribute $5,500 (2017 and 2016) and deduct the amount from the income.
      5. If you are 50 or older, you can contribute an extra $1,000.
    6. Student loan interest – Deduct up to $2,500 in student loan interest per year for the lifetime of the loan.
    7. Education expenses – You may qualify for the American Opportunity Tax Credit worth up to $2,500 or the Lifetime Learning Credit worth up to $2,000.
    8. Job expenses – Deduct education, training costs, job hunting mileage if the employer does not reimburse you for them.
    9. Home office tax deductions – You may deduct a certain portion of home costs related to a portion of your home if you use that portion exclusively for business purposes.
  • Eligible self employment tax deductions

    1. Internet fees – if you have a website or use the internet for business, deduct the percentage of time used for business.
    2. Home office –
      • Simplified option – multiply square space used for home office by $5.
      • Regular method – allow you to use actual office expenses, depreciation, etc. multiplies by the percentage of space the office takes up in the home.
    3. Phone expenses
      1. Deduct calls or services that are directly related to business.
      2. Deduct full expense of having a second, business-only line in the home.
      3. Deduct business-related cell phone expense or percentage of time used.
    4. Office supplies
    5. Advertising and promotion – (web hosting, business cards, advertising fees to marketing agencies or promotional video production)
    6. Dues and subscriptions – paid to professional associations, networking organizations or subscriptions to trade journals to help in the business are tax deductible.
    7. Licenses and permits
    8. Meals and entertainment – you can deduct 50% of the cost of taking a client to lunch or dinner but keep a log on who was at dinner, what was discussed and where the meal took place. Save the receipt for proof.
    9. Equipment – (computers, cell phones and iPads can be partially or fully deductible).
    10. Travel – Keep receipts and business information related to travel.
    11. Auto expenses – use simple calculation multiplying that year’s mileage allowance with the total number of business miles driven.
    12. Outside services – tax and accounting help or any guidance is deductible
    13. Insurance premiums – if you are self-employed, you pay for your own health insurance. You can write off the premiums if you meet certain requirements. You can also deduct life, property, casualty and business insurance
    14. Rent or lease payments
    15. Repairs and maintenance
    16. Utilities – you are allowed to write off a percentage of utility expenses (electricity, gas, water, etc) based on what is actually used for business.
  • Other questions on deductibles

    1. If you obtained a mortgage insurance policy, can you qualify for a deduction on the amount paid for premiums?
      • Answer – as part of Protecting Americans from Tax Hikes Act, qualified mortgage insurance will be treated as tax deductible interest through the end of 2016 for policies obtained in 2007 or later.
    2. Can you avail of tuition and fees deductions?
      • Answer – regardless whether you take standard or itemized deduction, you can deduct up to $4,000 in qualifying higher education and fees you paid for yourself, your spouse or dependent in 2016.
    3. Can you claim state and local sales tax as deductibles?
      • Answer – taxpayers have the option to deduct either state or local general sales taxes they paid during the tax year but not both.
    4. Can you deduct expenses for home renovation?


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