What many consider tax season doesn’t begin until January 1, but it never hurts to be prepared for what’s ahead. If past tax bills have left you hurting, there may be several small or obscure deductions or exemptions you aren’t taking advantage of. If you find yourself in over your head, there are a few ways to handle tax debt before it comes back to bite.
Common Homeowner Problems
Owning a home is an expensive endeavor, and not just because of the list price. Taxes on your home can add up to a significant amount if you’re not careful. Forbes listed a few common tax pitfalls1 that homeowners frequently run into, and among them is confusion regarding state estate taxes. While some states do not levy an estate tax, states that do still apply them to property owners living out of state. If you have a vacation rental, for example, you still must pay estate taxes on that home despite residency in a state without estate taxes. Estate taxes could rise if you put your home in a trust for disability planning purposes, which may catch some homeowners off guard.
Fortunately, there are several ways to reduce your tax burden if you’re a homeowner. If you feel your home’s assessment was inaccurate, you always have the option to appeal your property tax; Forbes pointed out that this is easier than it used to be thanks to electronic records on the Internet. Making investments in green technology for your home is another way to reduce your tax bill. There are numerous tax credits for environmentally friendly house additions, like new windows or insulation. These renovations tend to reduce energy bills over time as well, and generally make your home more comfortable to live in. You can learn more about these programs on the IRS website.2
Less Well-Known Deductions
Deductions and exemptions are available for people in a variety of financial situations. CNBC has outlined several that go unused3 by taxpayers every year that may require just a bit of extra legwork and could end up saving thousands. These include:
- Charitable donations: If you kept records of any charitable contributions you made, whether they were in the form of cash or donated goods, you can deduct them from your taxable income. Any contribution totaling more than $250 must have written confirmation from the charity in question. Even ingredients used to bake donated goods or miles driven for a charitable cause can be written off on taxes.
- Student loans paid by parents: If parents pay their college student back for student loan interest, the IRS treats this money as the student’s own and is subject to a deduction of up to $2,500.
- Unemployment: If you find yourself unemployed, keep track of your expenses through receipts so that you can claim them as deductions on your taxes. Just about any expense incurred from finding a new job can be included in these deductions.
“Keep track of your expenses during unemployment and you can write them off your taxes later.”
If You Owe
If you end up owing more in taxes than you can immediately pay, don’t delay filing them,4 according to U.S. News & World Report. Late filing penalties accrue the day after taxes are due, and will collect interest. If you’re stuck in a difficult tax situation, you can request an extension that will delay your payment due date or ask for leniency, which is viable if you have good payment history and owe less than a certain amount. This will exempt you from paying a late fee, but you still have to pay the full amount due. The IRS can also set up a payment plan so you can pay your taxes in installments. What you should never do, however, is neglect to contact the IRS and explain your situation. They will find you eventually, and if you’ve made no effort to pay you could face significant penalties, or even jail time. When it comes to paying taxes, you just have to be honest and cooperative.
Looking into deductions can save you lots of money on taxes, but may take a little extra time. In the end, though, the time invested to do the deductions is well worth the money saved. Look into what deductions apply to you, and if you owe taxes and cannot afford them, contact the IRS to see about your options. By using these tools you will be in a better financial spot.
The views expressed by the articles and sites linked in this post do not necessarily reflect the opinions and policies of Cash Central or Community Choice Financial®.
1Ebeling, Ashlea. (2015, Oct 6). Retrieved from: https://www.forbes.com/sites/ashleaebeling/2015/10/06/7-tax-tricks-for-homeowners/?sh=563f7a4e51c2
2IRS. Retrieved from: https://www.irs.gov/newsroom/energy-incentives-for-individuals-residential-property-updated-questions-and-answers#:~:text=credit%20for%20homeowners%3F-,A.,overall%20credit%20limit%20of%20%24500).
3McCormally, Kevin. (2009, Dec 4). Retrieved from: https://www.cnbc.com/id/34174399
4McCluskey, Molly. (2015, Apr 16). https://money.usnews.com/money/personal-finance/articles/2015/04/16/what-to-do-if-you-owe-the-irs-but-you-cant-pay?int=a35b09