Tag Archives: itemize

The goal for most tax payers is to keep their taxable income (line 43 of the 1040) as low as possible.  Your taxable income is used to determine where you fall on the 2013 Tax Brackets chart below and the amount of tax you’ll owe for the year.  Luckily, there are many deductions and credits to be taken before and after line 43 to reduce the amount the IRS wants from you.  Here are six easy ways (in no particular order) to lower Uncle Sam’s expectations.

1. Take a loss…Rental real estate can be a great tax savings.  However, a tax loss is not the same as not being able to cover your mortgage, so be sure you understand what you’re getting in to.  Many taxpayers aren’t deducting all they should and are therefore not maximizing this tax benefit.  Take a look at this blog post from the archives on completing Schedule E to ensure you’re not forgetting anything.
2. Contribute to a Health Saving Account (HSA)…If you’re enrolled in a high-deductible health plan (HDHP), a HSA allows you to use pre-tax dollars for future health care costs.  In addition to your income being reduced, you own the funds in the account. Unused funds can be rolled over year to year and money can be withdrawn tax-free to cover qualified medical expenses.
3. Keep track of moving expenses…As a military family with four international moves under our belt, writing off our unreimbursed moving expenses has been a perk.  The two most common items forgotten are the shipment of vehicles and pets.
4. Itemizing deductions…Gathering certain expenses that collectively exceed the standard deduction for your filing status is another great way to lower your taxable income.  Use Schedule A to report amounts paid for home mortgage interest, medical and dental expenses, real estate and personal property taxes, tithes and other charitable donations.  Job search expenses, like printing and mailing your resumé are deducted here as well.
5. Take a job abroad…Not only is this a great way to travel, but thanks to the Foreign Earned Income Exclusion, you can exclude a large portion of the income from taxation.  Can you imagine yourself in France, earning $97,600 (the 2013 cap) and not paying one penny in US taxes?
6. Start a family…Although I’m not recommending having children just for the tax break, it’s a nice benefit.  Children on your tax return will increase your exemptions amount and make you eligible for the refundable Child Tax Credit of up to $1000 per child. Just be sure not to include children on your return who are not real, someone else is claiming, or are otherwise not considered a “qualified dependent” by the IRS.