How to Reduce Income Tax Liabilities? Contents Abstract 1 Introduction 1 Tax Deductions 2 Tax Credits 4 Conclusion 5 References 5 Abstract Income tax authorities have prescribed a number of methods by which the income tax liabilities of various categories of tax payers can be reduced to a permissible extent. There are a number of items of expenditures, which entitles a person to deduct the amount from his total taxable income. Some of the major expenditures that are considered as allowable deductions include donations for charity, interest payments for home mortgage, alimony related payments, amounts lost due to theft or casualty and moving expenses necessitated due to relocation activities. Similarly, there are a number of tax credits that too entitle a taxpayer considerable relief. Under this provision, unlike deductions, the amount of credit allowed is deducted from the total tax liabilities. Two of the major credits that facilitate income tax exemptions are energy tax credit and child tax credit.
Introduction Payment of income tax is an annual routine that drains out a considerably portion of income from a persons savings in case his total earnings exceed a specified income bracket. Apart from performing tasks involving calculating the taxable income, filing tax returns and paying the actual tax, one should also be acquainted with a number of other aspects with regard to tax related matters and rules. There are a number of ways prescribed in the US tax laws through which income tax liabilities of a taxpayer can be legitimately reduced. One of these methods involves availing of deductions for some specified expenses incurred by the person, while another way is to get such relief from the tax credits. It may be pertinent to mention here that there is a distinction between deductions and credits in relation to calculation of income tax. Deduction implies reduction of the allowable expenditures from the total taxable income, whereas in case of tax credit the actual amount of the allowed credit is reduced from the total tax due.
The Essay on Taxes and Credit
Instructions Save this file in your course folder, and name it with Assignment, the section number, and your first initial and last name. For example, Jessie Robinson’s assignment for Section 1 would be named Assignment1JRobinson. Type the answers to the assignment questions below. Use complete sentences unless the question says otherwise. You will have more than one day to complete an ...
Tax Deductions There are a host of expenses that entitles a tax payer for deductions under the existing tax rules in the United States. Details with regard to five of the allowable expenditures are given below: Donation: Any income tax payer can claim deductions when he makes donations in cash or in kind to nonprofit/ charitable agencies. In order to qualify for this concession, the taxpayer is required to maintain records of such donations, particularly of those exceeding $250. As regards the donations in kind, details such as value and condition of the items so gifted must be furnished. While the taxpayer may himself assess the fair market value of the donated property, he needs to obtain a written appraisal for all non-cash contributions costing more than $5,000. Likewise, a written acknowledgement from the receiver must be produced for donation of any type of motor vehicle/boat/aircraft with a fair market value over $500. Interest Paid for Mortgage: Any interests paid toward a secured debt received against mortgage of legally owned houses are admissible as a tax deduction subject to a number of stipulations made under the tax rules.
The taxpayer concerned is required to fill out requisite forms/schedules to itemize the deductions. All documents proving the ownership of the property along with a Mortgage Interest Statement from the lenders are required to be attached with the income tax return. Interests for a maximum of two houses are only admissible (for persons owning more than two dwelling units).
The Essay on Tax Return Project Instructions And Tips
For your tax return project, you need to prepare a 2013 federal income tax return for Will S. and Mari N. Frost. Their information is located in Appendix E, Problem 1 of the file posted to Canvas. We will have a hands-on session on Thursday, March 5 during class time. Bring the tax return information, your laptop, and your software to that session. Plan to take many notes. On or by Friday, April ...
Alimony: While receipt of alimony is taxable, such alimony paid by a divorced spouse is a legitimate deduction. The taxpayer qualifies to the deduction as long as the spouses are legally divorced, they are no longer living in the same household and the payment is not made toward child support. Casualty and Theft: A vital provision in the US tax rules permits selected cases of loss incurred due to casualty and theft for income tax deductions. The loss due to casualty (such as natural disasters, vandalism, terrorist attacks and car accidents) must be unexpected, identifiable and unusual to qualify for deduction.
Cases indicating personal negligence or lapses or general deterioration are not admissible. Losses due to theft are also deductible if the taxpayer is considered as a genuine victim of robbery, burglary, blackmail, extortion, larceny or kidnapping for ransom. However, loss due to misled or lost property and a few forms of any loss in bank deposits do not qualify for the subject deduction. 5. Moving Expenses: In the event of the taxpayer relocating his establishment due to change in job, he is eligible for tax deduction for the money spent by him for shifting. All the expenses related to packing, transporting, travel (including lodging but excluding meals) qualify for the deduction. If, however, part of the expenses is reimbursed by the new employer, the balance over and above the reimbursed amount can be claimed as allowable deductions. The taxpayer is also required to meet the tests/stipulations for distance (i.e., the distance of the new job station must be at a distance of at least 50 miles from the old station) and time (i.e., must work full time for a minimum of 39 weeks for the next 12 months).
Tax Credits As mentioned earlier tax credit is different from deduction in the sense that it entails reduction of the available tax credit from the total tax liability of a person. As such, the benefit derived from tax credits is substantially more than one gets from tax deductions. Another major aspect of tax credit is that there are refundable as well as non-refundable tax credits. The distinction between the two is given below: Refundable Tax Credit: It is applicable to cases in which tax is deducted from a persons salary by the employing authorities regularly at the source of payment. If, in the final analysis, the total tax collected exceeds the actual tax liability, the amount paid in excess is refunded to the taxpayer. Non-refundable Tax Credit: This type of credit is available only to make up for the current tax liability. A refund is not warranted even if such credit exceeds the final tax liability figure.
The Essay on Income Tax and Deductions
Tax avoidance is legal in most states and every tax payer will present his returns in a way which reduces tax burden the most. Thus a taxpayer will opt for either standard deduction or itemized deduction whichever will enable him shoulder less tax burden. For standard deduction the deduction from taxable amount is a standard amount. For example for a single citizen the standard amount is $5,350. ...
While there are a number of tax credits available under the US tax rules, two of the major ones are enumerated below: Energy Tax Credit. This is a unique tax concession provided to people who intend to make their home (only the principal one in case more than is owned) more energy efficient as well as to purchase selected energy-efficient items. For a person to avail of this tax credit, which is refundable in nature, the equipment/items must be projected to remain installed for a period of at least five years. 2. Child Tax Credit. A person wanting to take this credit must be married and have a child (or children) below 17 years of age. The child must be a US citizen and is reflected as a dependent in the individuals tax return.
This is a partially refundable credit and is admissible exclusively to taxpayers falling under a specific income bracket. The credit is currently limited to $1000 per child. Conclusion Payment of tax is the moral duty of any law-abiding citizen. Yet, a little knowledge and sufficient initiative on the part of the taxpayer can result in considerable savings for him in the short as well as in the long run. As such, one should make adequate efforts to ascertain and understand the details of these concessions from the relevant income tax rules. Alternatively, help of professional tax consultant should be solicited before filing the returns. References 1. About, Inc. (2007).
About.Com: Tax Planning: US: Deductions and Credits.
Retrieved on Dec27, 2007, from http://taxes.about.com/od/deductionscredits/Deduct ions_Credits.htm 2. The American Institute of Certified Public Accountants (2004-2007).
360 Degrees of Financial Literacy. Retrieved on Dec27, 2007, from http://www.360financialliteracy.org/Financial+Guid ance+Articles/Tax+Credits.htm 3. Wikipedia: The free Encyclopedia (Dec 10, 2007).Tax Deduction. Retrieved on Dec27, 2007, from http://en.wikipedia.org/wiki/Tax_deduction.
The Term Paper on Building Cost Comparison Historical Tax Credit Vs New Construction
Building Cost Comparison: Historical Tax Credit vs. New Construction For the construction companies there is often an issue raised of whether or not to start a new construction or to renovate some historically existing building. This issue has many variables that need to be figured out in order for the correct solution to be found. There usually is a special team of researchers who analyse the ...
