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Get stuck paying income taxes every year? Want to get out of paying so much? Check out these legitimate ways to “cheat” on your taxes and see what loopholes, deductions, and credits you can claim.
Here are eleven of them.
1. Start at Work
Start at work first, go to human resources and ask to see your W-2. Your W-2 reports the amount of federal, state and other taxes withheld from your paycheck. As an employee, the information on your W-2 is extremely important when preparing your tax return.
You can claim withholdings such as:
- Marriage & Dependents
- Number of Jobs
- You or a dependent has a disability
- You pay for child or elder care
Check out the IRS’s Withholding Calculator to estimate your own withholdings.
Be sure to talk to your human resources manager for any more claims you qualify for. But the basic notion is the more claims you make on your W-2, the less tax you’ll pay in the new year (and maybe even get a refund).
2. Itemize instead of Accepting the Standard Deduction
Have you been claiming the standard deduction instead of itemizing everything just because it’s easier? You may be missing some opportunities to claim more on your Schedule A (form 1040) on your income tax form.
If you’re single, the new 2018 standard deduction is $12,000.
Instead, some things you can itemize are:
- Unreimbursed medical & dental bills – out-of-pocket medical and dental expenses that exceed 7.5% of adjusted gross income
- Interest expenses – claim the interest paid on mortgage and home equity debt
- Taxes paid – 2 types of taxes can be claimed, personal property taxes and the state and local taxes that were assessed for the previous year.
- Charitable donations – Any donation to qualified charities can be deducted (with some limitations)
- Casualty and theft losses – Only losses in excess of 10% of adjust gross income can be claimed
- Unreimbursed job-related expenses & certain miscellaneous expenses – Claim any work-related expenses that exceed 2% of the adjusted gross income. Including equipment, clothes, home office, dues for professional organizations, and so on.
How does this work? Let’s say Bob earns $100,000 gross income and claims the standard $12,00 individual deduction. It’s now $88,000 and Bob is in the 20% tax bracket, so he’s taxed for $17,600 income.
Now let’s say Bob’s itemized deductions exceed the standard deductions and he can claim $14,500 instead. Deduct that from his gross income and is now taxable for $85,500. With 20% he’s now taxed for $17,100. A $500 difference.
Working with an experienced tax preparer can help to ensure that you qualify for itemizations on your tax return. Your tax preparer should also be able to allow you to determine whether you should itemize or take the standard deduction.
3. Did you Sell your Home?
There are several deductions you can claim on your taxes after you’ve sold your home. These include:
- Points paid when you bought the home
- Mortgage interest and property taxes while you lived there
- Commission paid to your real estate agent
- Fees paid at closing
If you haven’t sold your home yet but want to by the end of the year, this book will help you sell in 5 days.
4. Your Car Registration
Every year you have to pay for new registration and tags on your car, or cars, and any other vehicles like your motorcycle and boat.
But did you know you can claim this on your income taxes every year?
- The sales tax on your car when you bought it.
- If your state calculates a percentage of the vehicle tax based on the value of your car, you can deduct that percentage as part of your personal property taxes.
- Your yearly car registration fees.
After you slap your new decal on your car, file away the receipt and add that payment to your deductions for personal property taxes in April.
5. Claim the Homestead Tax Credit
Do you live in a home that’s not used as a rental or investment property? You can claim the homestead tax credit or exemption. This is where the homeowner is excused a certain dollar amount or percentage of home value from property taxes.
For example, your home value is $200,000 and your property tax rate is 1% – your annual bill would be $2,000. But if you applied for a homestead tax credit and are eligible for a $50,000 credit, then your taxable value is now $150,000 and your yearly tax bill is now only $1,500. A $500 savings.
Check your local county treasurer’s office for a form to fill out and file with them.
6. Deductions for Volunteering
I already mentioned charitable contributions as a deduction, but what if you dedicate your free time as a volunteer for an organization?
Keep your public transit receipts or a detailed mileage report for all the times you ride or drive to your volunteering event and you can claim those miles with the standard mileage rate of 54.5¢ per mile for the 2018 tax year.
Bonus: You can also claim this mileage deduction for any medical trips you take as well.
7. Deductions for your Work Travels
You may already know you can claim flight tickets and hotels on your taxes for work-related expenses, but did you know there are more claims you can deduct? Such as:
- Dry-cleaning or laundry costs while on the road
- Any shipping fees to ship baggage, documents, displays and such to your travel destination
- Calls, faxes, internet surcharges, and photocopying fees while away
- Any meals and entertainment that weren’t reimbursed by your employer
Be sure to get an itemized bill from your hotel to use on your claim.
8. Deductions for your Home Office
If you work from home, either remotely for a company or for yourself, there are many deductions you can claim for just having a home office.
First, it needs to be solely used as an office, not as part of your bedroom or living room. Then you can deduct the following:
- Part of your utilities and mortgage or rent payments. How to find out how much you can claim? Suppose your office is one room in your 7-room house – so now you calculate everything by 1/7. Let’s say your electric bill for the whole year was $1,440, divide that by 7 = $205.71 is your claim.
- Part of the mortgage interest and property taxes. Same math as above
- Home improvements to the office space. You painted the room – claim that.
- Home depreciation
- Personal purchases for your office can be converted into business write-offs.
The TurboTax Self Employed web application may help you figure out more deductions too.
9. Lifetime Learning
You may already know about the Student Loan Credit or the College Tuition credit and think well that’s for young kids.
But did you know there’s the lifetime learning credit? The credit is worth up to $2,000 a year, based on 20% of up to $10,000 you spend for post-high-school courses that lead to new or improved job skills. If you brushed up on skills in 2018 then you can claim this. But, this tax-saver phases out as your income rises from $55,000 to $65,000 for individuals and from $110,000 to $130,000 for couples filing jointly.
If you dream about returning to school but doubt you can in your busy life, just read this book for great tips and encouragement.
10. Deductions for Deadbeats
Got friends you loaned money to but never saw a dime back? Deduct it on your taxes. Initially, this was for businesses that loaned money, but a loophole allows anyone to claim this.
To claim this, the debt must be considered 100% worthless and a real debt and not a “gift”. It helps to have it in writing that the borrower intends to pay it back – but never did. You need records that you attempted to get repaid – letters, emails, phone calls, etc.
Even better is if the borrower went bankrupt and claimed your debt in his listings, then you can claim this deduction right away.
11. Claim your Pets
No, I don’t mean claim your fur baby as a dependent, no matter how much you love them.
But you can claim:
- If it’s a legitimate service animal and you can claim food expenses, vet fees, grooming, and other related expenses to maintain it.
- Costs to move your pets. If you moved to a new place, you can claim the cost of room and board of your pets while you were moving.
- Any animal-related expenses. Either the costs of the live traps used to catch and release wildlife off your property, or like one junkyard owner did and claimed the cost of cat food as an expense so the feral cats can keep the rat and snake populations under control.
12. Health-Related Home Improvements
Anything you add or change to improve your home in relations to a health condition can be deducted. Be sure to get a letter from your doctor stating your condition first..
Such deductions are:
- Wheelchair ramps, widening doorways and any renovations to accommodate a wheelchair or walker.
- Any additions to help with a medical condition. One doctor prescribed water exercise for joint pain improvement so the patient deducted the cost of installing a swimming pool as a medical claim. Another claimed an installation of a sauna spa as a medical necessity for bronchitis.
- Adjustments to vehicles for better access.
I hope you do realize that my title comment about “cheating” on your taxes was all in jest. Don’t try to actually cheat on your taxes though!
What happens if you cheat on your income tax?
- If you claim less than you actually made and you were caught, you will owe 20% of the taxes you underpaid.
- Try and evade or defeat any taxes and you could be facing a felony with jail time of up to 5 years.
- Try and hide money into a foreign account. The IRS has agreements with many foreign countries to get information on US citizens and will track you down.
- Hiding money with “third parties”. The IRS will track any money given to third parties and check if they are legitimate.
- Dodge taxes and you could be fined up to $250,000 for individuals.
It’s much easier (and cheaper) to file your taxes honestly and truthfully, but at the same time you’re entitled to claim as many deductions you qualify for. Check out these 1001 Deductions and Tax Breaks for 2018 for more claims you can make.
Check out these other tax-related posts: