Welcome back for the final part of our 3 part blog series on significant tax deductions that many consumers often overlook or forget. In parts 1 and 2 we shared a lot of excellent deductions that, unfortunately, the average taxpayer either doesn’t know about or simply forgets at tax time. In today’s final part we’ll be doing the same thing and hopefully providing you with more interesting and informative information that will help you save big bucks when Uncle Sam comes around. Enjoy.
The first today is additional bonus depreciation, something that many business owners, especially those who run their business from their home, forget about after they purchase new equipment. This one is rather difficult to keep up with when you consider that Congress is constantly going back and forth with the laws, either allowing them to be cut back or expire and then writing them back into law again. In any case, check with your accountant to make sure and, if you can, take these additional bonus depreciation dollars and run.
While it doesn’t work for employees, if you’re self-employed you can deduct 50% of the part of your pay that Social Security and Medicare take from you, which is great considering that you have to pay all amounts of this tax yourself since your employer isn’t paying half. Was also great is that, since this deduction comes on the face of the 1040 form, taking advantage of it is easy because it doesn’t have to be itemized.
While this isn’t a deduction, the waiver of penalty for the newly retired can save you quite a bit of money. The reason is simple; the American tax system operates on what is known as a “pay as you earn” basis, with taxpayers typically paying 90% of what they earn during the year either from withholding or estimated tax payments. The problem is that, if you don’t do that, and you end up owing more than $1000 to the Feds when you file your tax return, the penalty for underpayment of taxes can be a big one. In fact, the IRS can force you to pay back the money you didn’t pay them, at a rate of 3%, as if you had taken out a loan from them.
However, if you’re 62 years of age or older the year you retire, and the following year as well, there is a little-known exception that can protect you. Using Form 2210, you can request a waiver of this penalty (for a number of various reasons). You need to have reasonable cause in order to get this exception, so talking to your accountant about the details is probably a good idea before you take it.
And there you have it, dear readers, Part 3 of our 3 Part series on tax deductions that many consumers overlook or forget. Now that you’ve seen them you certainly can’t overlook them any longer, but keep this blog article on hand if you need to refresh your memory come tax time.
Also, if you have any questions or need any advice on your taxes, please send us an email or leave a comment in the comments section. Thank you.