The income tax code contains provisions known as tax breaks, which reduce the amount of money that you and your family are required to pay. There are those who believe that claiming a tax break is a form of cheating--something that only the wealthy or greedy people and corporations do--but this is not the case. According to the famous Judge Learned Hand, "There is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike, and all do right, for nobody owes any public duty to pay more than the law demands." You're absolutely entitled to any tax break you can possibly qualify for, and for you not to take those breaks is to give the IRS a gift that it does not deserve.
Looking for tax break tips? There 5 rules you should remember when looking to reduce your taxes.
- Don't lie. If you can't exempt, defer, or cancel out a certain part of your income, you must pay taxes on it. Hiding, renaming, or lying about your money is a sure way to get audited, fined, and even arrested in some cases.
- There is a lack of integrity in today's public. Even people who are honest in most other areas of their life often bend tax law in order to make more money. This is not only dishonest but it is also illegal and unethical. Legislators have recently given tax breaks in order to save our economy from a devastating depression. Other laws have been written in order to protect our environment for future generations. When we dishonor these laws and steal by bending the tax laws for our personal gain then we are actually hurting ourselves, our children and our family in the long run. It is important to contact a tax professional when we have a question about how a law does or does not affect us.
- Tax credits should always be chosen before deductions. Tax credits reduce the amount that you have to pay on your taxes overall while tax deductions just reduce the amount of income you can be taxed on. It makes more sense to choose a tax credit because if you get a large deduction on your taxes, for example $1000, then you still have to pay a certain percent of your taxes with that $1000 subtracted out. It would make more sense if you just accepted a $1000 tax credit you would likely save more because it is a lump sum since if you accepted a deduction you would only see a certain percentage of the $1000 actually taken off of the amount you owe.
- Make certain you are filing the correct form; for some tax breaks, only a particular tax form will work. Not every taxpayer may file the simplified forms 1040A or 1040EZ. You may need to file the long form 1040. Read all instructions carefully, and if something is unclear, consult a tax preparation professional.
- Be careful of the Alternative Minimum Tax (AMT). The AMT doesn't use the same guidelines as normal income tax. No matter how many tax breaks you are able to receive, you must pay the AMT, which is set in order to make sure everyone pays a minimum amount of taxes. If your income tax total is below the minimum amount, you will be required to pay the AMT.
You can start taking advantage of tax breaks today by finding out which ones you qualify for.