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In order to pay no more taxes than you have to, it is important for you to understand how tax deductions and credits work in your income tax, no matter how you figure out your taxes, whether you use an accountant, buy and use a software package, or even if you fill out the forms by yourself.
The first thing to do is to collect your receipts. You should also try to remember any charitable giving that you may have done in the past year. This should include any donations of clothing or toys you may have made. It also includes miles that you drove in order to volunteer for charitable organizations.
Deductions for charitable contributions are the 4th most common deduction for taxpayers. The IRS reported taxpayer claims of $172 billion in these deductions in 2005, and this amount has increased in recent years.
Donations of cash to charities have new rules this year. Previously, you needed to get a receipt only if the donation to any one charity was more than $250. However, now receipts or other bank records are needed for any donation to be claimed as tax deductions, no matter what the value is.
To claim credit (tax deductions) for donated worn items such as clothing, the IRS now requires that they be in at least "good" condition. The thrift shop value of clothing is considered to be 25% of the original price.
Another way you can save on your taxes is by contributing to a 401K or other retirement account. The amount you contribute can often be deducted from your taxable income. Of course, there are maximum income limits in some cases, and you need to be aware of the official rules and policies before you make such contributions.
Also, you may want to consider the gift tax exclusion. This is when one person gives another person a gift worth up to $12000, which is tax-free. If the gift is worth more than $12000, only the first $12000 of value is tax-free. It's fairly common for parents or grandparents to give such gifts, and to take the tax deduction that goes along with this family gift. When this happens, the person that gets the gift doesn't have to fill out any forms, or report it on their taxes. This is a very simple way for a parent or grandparent to save money on their taxes, and to help our his or her child or grandchild.
Of course, you should check with the IRS for official rules and policies. The IRS web site is the best and easiest source of these rules and policies. You can also look at web sites from tax software vendors for their interpretations of these rules.
Learn How to Deduct Mileage for Commuting and other hidden Tax Deductions and Credits that can save you tons of money. Ron Finkelstein is NOT a Tax Attorney or an accountant. He is merely a small business owner who has paid a lot of money over the years to learn a whole lot about Taxes and Time Management. I hope you enjoyed learning how to maximize your limits on qualifying for tax deductions and credits
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