If you’re looking for ways to decrease your tax liability, a good place to start is at work. There are several simple things you can do to cut your tax bill by hundreds or even thousands of dollars per year. The following tips can help you to make the most of your tax savings while on the job.
One of the easiest and most effective ways to reduce your tax liability is to take advantage of employer programs that allow you to use pretax dollars to fund expenses or investments. For example, certain employers allow workers to purchase transportation and parking passes through a discount program using pretax dollars.
You can also plan for money to be deducted from your paycheck to fund a flexible spending account (FSA) to pay for out-of-pocket medical or dental expenses. Some employers also offer plans that allow employees to use pretax dollars to fund dependent care expenses for a qualifying child or relative. The care expenses must be paid for an individual who qualifies as a depending under IRS guidelines.
Using pretax dollars to cover these expenses reduces your taxable income, lowering your overall tax bill. It’s important to remember, however, that there are specific rules as to how and when you can use money in these types of accounts. If you fail to use all of the money in a particular contribution year, the funds can’t be rolled over.
Claiming certain work-related deductions can also help to reduce your tax liability. For example, the IRS allows you to deduct moving expenses if you worked at your previous job full-time and your new job is 50 miles or more away from your old home. The type of expenses you can deduct include money paid to a moving company, costs associated with hotel stays or temporary housing, the cost of packing materials and your fuel costs.
If you use your vehicle regularly to travel for work, you may also be eligible to claim a deduction for your mileage or your gas and depreciation. Some employees may also be able to deduct the cost of uniforms and equipment, as well as any education expenses that were paid out of pocket to take courses relevant or necessary to their job. If you plan to claim these types of deductions, it’s important that you maintain accurate records of your expenses to protect yourself in the event of an audit.
Some employers may cover the cost of certain benefits for workers in exchange for a tax deduction. This means that you can take advantage of the benefit incurring any additional tax liability. For example, if your employer covers the cost of your medical and dental care, life insurance, professional membership dues, certifications, subscriptions to trade publications or provides adoption assistance, these benefits may be excluded from your taxable income. It’s important that you understand which benefits are or aren’t taxable in order to ensure that you’re not unintentionally incurring any additional tax liability
If you work from home, you can still take advantage of certain deductions in order to maximize your tax savings. The home office deduction allows you to deduct certain costs associated with any portion of your home that is used specifically for your work. For example, you may be able to deduct a portion of your rent or mortgage payment, homeowner’s association fees, insurance and utilities. In addition to deducting the space itself, you may also be able to claim a deduction for any supplies or equipment that is required for your work, including office supplies, furniture and computers. Finally, if you pay your own health insurance premiums, you may be able to deduct these expenses, depending on your marital status and whether or not your spouse is covered by an employer’s insurance plan.
Regardless of whether you go to work in an office every day or conduct business from the comfort of home, making the most of your tax savings should be your top priority. Taking advantage of employer-sponsored programs and work-related tax deductions can help to ensure that more of the money you make ends up in your pocket.
This post was published on July 12, 2012