This year, why not try some new ways to reduce your tax bill? Here are three ways to lower your taxable income so that your overall tax liability is less. These are deductions, so each useful tool depends on the taxpayer itemizing deductions rather than taking the standard deduction. This is $6100 for an individual for tax year 2013 (done in 2014). As long as the total of your itemized deductions is more than the standard, which you get anyway, then it’s worth it to choose the itemizing method over the standard deduction.
Useful Tool #1: Noncash Charitable Contributions
Did you know that you can donate things to charity and get a tax deduction for the value of those things? Of course your cash donations to tax-exempt organizations is a deduction but you can also deduct the value of donated items such as art, real estate, vehicles and more.
So, if you gave this year, and you gave big, then IRS Form 8283 might be for you when you file your income tax return with the IRS. IRS Form 8283 is for Noncash Charitable Contributions totaling over $500. This can be real estate, art, antiques, coin collections, whatever has value and which you donated to a qualified tax-exempt charitable organization.
Useful Tool #2: Business Miles
If you drove your personal car for work-related travel then you can deduct the IRS mileage rate on your tax return. Just check with your employer first to make sure you didn’t already get reimbursed for the travel…no double dipping here!
Useful Tool #3: Contribute to Your IRA
This is a no-brainer. Put money into your own Individual Retirement Account (Traditional, not Roth) and the contributions are tax-deductible. The reason I say “Traditional not Roth” is that the contributions to a Roth IRA are not tax-deductible. The catch? You get to take distributions from your Roth in retirement tax-free. The traditional IRA doesn’t work that way: you get the nice deduction now but you pay income tax on the withdrawals later.