We have all heard politicians demanding that individuals and companies alike pay their “fair share” of taxes. The primary issue with these elected officials is they seem to think that they are the only ones who know what is “fair”. I take a slightly different approach to this line of thinking. I believe that taxes are a fare. In other words, taxes are a cost of doing business, and are in no way fair.
The problem with using the term “fair” in relation to taxes is that it’s very difficult to get everyone to agree on what is “fair”. So at this point in my blog let’s all agree that taxes are not “fair” and they are actually charge of doing business.
Taxes are levied on us by cities, counties, states and the Federal Government. They come in the form (for the lion’s share of us) of, sales taxes, use taxes, excise taxes, property taxes and income taxes. For the purposes of this blog, we are only concerned with income taxes. Let us agree that the income tax system works in the following way: the more you make the more they take! So at this point I ask you: do you want to be in the highest tax bracket or the lowest tax bracket? Take your time to think about it and remember if you get this right you are further along on your way to financial freedom. So what do you think, highest or lowest? The correct answer to that question is that you always want to be in the highest tax bracket.
Being in the highest tax bracket means you are making a lot of money and therefore, have the ability to keep a lot of money. You see, it’s not what you make, but what you keep that counts. Because after you have paid your fare, what’s left is yours.
Here are today’s tips on reducing your fare.
Any deductible expense is useful because it reduces the amount of income subject to tax. But for individual taxpayers, deductions that can be claimed in arriving at adjusted gross income (AGI) — referred to as “above-the-line” deductions — are especially significant. By lowering AGI, above-the-line deductions increase your chances of qualifying for various other deductions and credits.
Alimony. Generally, payments are deductible if they were made in cash pursuant to a divorce or separation instrument. Other requirements may apply.
Traditional IRA contributions. Contributions of up to $5,500 ($6,500 for individuals age 50 or older) to a traditional individual retirement account (IRA) are potentially deductible on your 2015 return. AGI-based limitations apply if you (or your spouse) are an active participant in an employer-sponsored retirement plan.
Rental property/trade or business expenses. Expenses associated with property held for the production of rents are deductible above the line on Schedule E, whereas sole proprietors deduct their trade or business expenses above the line on Schedule C.
Student loan interest. Taxpayers may deduct up to $2,500 of interest expense on qualified higher education loans, though phaseouts apply to those at higher levels of modified AGI.
Moving expenses. Subject to certain requirements, a taxpayer who moves as a result of a change in his or her principal place of work may deduct certain costs of moving and traveling to the new residence.
Health savings account contributions. The 2015 deduction limits are $3,350 for those with self-only coverage under an eligible high-deductible health plan and $6,650 for those with family coverage. An additional $1,000 deduction is available to those 55 and older who are not enrolled in Medicare.
Self-employed taxpayers. The self-employed also may be able to deduct retirement plan contributions, qualified health insurance premiums, and a portion of their self-employment taxes.