What You Need To Know About Tax Planning

Author: Keith Huggett

You're now somewhere in your mid twenties to thirties. Your career is taking shape, you may be considering purchasing a home. You may even be starting a side business or starting to invest. As you begin to bring in more earnings, you may find that you are paying out more in taxes. It's important to be prepared for this, so plan ahead!

• Automobile Expenses - When you are travelling for business, you can take the standard mileage deduction in most cases (as a self-employed person or as an employee), when you drive to the doctor, during a deductible move, or when you’re volunteering for a charitable organization. The standard deduction for use of a car in 2014 is 56 cents per mile for business miles, 23.5 cents per mile for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.  You will need to keep a mileage log with the date, distance driven and purpose of the trip.
• Bad Debts - As your wealth grows you may encounter people or businesses wanting to borrow from you. If you can’t get them to repay, you had an actual debt, and if you made efforts to collect, you may be able to deduct the bad debt as a short-term capital loss.
• Capital Gains & Losses - Plan ahead before you sell! If you’re selling any capital asset at a gain, pay attention to the minimum holding period for a long-term capital gain if possible. If you sell an asset one year or less after you purchase it, you have a short-term gain. Hang on until “more than” one year; for example, one year and one day, and it’s a long-term gain.
• Exemptions for Dependents -Every child you claim as a dependent reduces your 2014 taxable income by $3,950. You’ll get that full-year exemption, even if your child is born on New Year’s Eve. Don’t forget to claim qualifying foster children, a child who lives with you but is away at school, and in some cases a child you support who lives with the child’s other parent, and possibly your parents who you support, or nonrelatives who live with you.
• Retirement Planning -If your employer has a retirement plan, be sure to sign up for it as soon as you qualify.You should contribute an amount equal to the amount your employer will match.
• Interest -The deduction for home mortgage interest is a powerful incentive to buy a home.You can deduct interest on up to $1,000,000 total acquisition debt on your main and secondary home.
• Job Hunting -Looking for a new job can be expensive, especially if you pay agency fees or you travel to interview for a job. If your total miscellaneous itemized deductions, including job-hunting expenses, exceed 2% of your adjusted gross income, you may qualify for deductions.
• Buying or Selling a House - The sale of a residence is not usually a taxable event. If you and your spouse have lived in the residence for more than two out of the last five years you may qualify for the $250,000 exemption ($500,000 if married filing jointly).
• Home Office Deductions - If you qualify, you deduct $5 per square foot for up to 300 square feet, for a maximum simplified home office deduction of $1,500.
• Self Employment Income -Whether you make some freelance income on the side, or you’ve left the corporate world completely and are running your own show, you may be self-employed in the eyes of the IRS. If so, you’ll pay self-employment tax, at 15.3% of your net income, on your income tax return. On the bright side, you should be able to take business deductions such as computer expenses, vehicles, home office, etc.
  
  
• Zero Tax Refund -With proactive tax planning, and the help of The Tax Office,Inc., you can have just the right amount of tax withheld and make the best estimate for your quarterly tax payments, if necessary.That way, you have neither a big tax bill nor a windfall when you file your tax return.