In my prior blog post on “12 Ways to Save on Taxes Through Life’s Transitions“, I gave you 12 tips on education, working and family life. This blog post continues with 11 more tax tips to help you save through life’s major events.
1. Before your divorce is final, copy all business tax returns for your spouse’s corporation or partnership. The IRS will not give you copies of your spouse’s business returns if you did not sign them.
2. Consider the tax implications of paying support. Child support is not deductible, but alimony is deductible to the payer and taxable to the recipient. If it’s rolled together into “family support” it is fully taxable to the recipient and deductible to the payer, just like alimony. Follow the 5Ds for alimony deductibility. To be deductible, alimony must be paid in dollars, under a decree or written agreement, and cease on your ex’s death. After the divorce, you must maintain your distance (you can’t live with your ex), and the payments can’t be designated as non-taxable or child support.
3. Keep a calendar of the days (and nights) your child spends at your house and at your ex-spouse’s. This will provide documentation for the courts and for the IRS (for dependency exemptions and head of household filing status).
4. Shift income to your child’s lower tax bracket by paying your children reasonable wages to help you with age-appropriate jobs in your business. A child may be able to earn up to $6,200 in 2014 without paying federal income taxes.
5. Deduct the health insurance premiums you pay for your entire family. If you employ your spouse in your business, you may deduct the premium as an employee benefit.
6. Deduct an office in your home, if you regularly and exclusively use part of your home to perform administrative or managerial activities for your business. You may be able to deduct a portion of utilities, rent or mortgage interest, depreciation, cleaning, and the like.
7. Read more. Subscriptions, books, and other materials related to your field are tax-deductible items. Ditto conferences, seminars, and courses related to your work.
Home Ownership and Investing
8. Own your own home. Mortgage interest and property tax deductions will save you money on your taxes, and saving to buy a home is a wonderful use for your money after you have contributed the maximum to tax-advantaged retirement plans.
9. Deduct points paid on your home loan. Points paid when you acquire your home are deductible in that year, and points paid to refinance a loan must be written off over the length of the loan (1/30 each year on a 30 year loan). When you refinance again, you can write off the remaining unamortized points. When you sit down to do your taxes make sure you have records of points paid. TurboTax will ask simple questions about your home loan and accurately calculate your your tax deductions.
10. Contribute to your IRA early in the year so your money has longer to grow. Although you have until April 15 of the following year to contribute, your money will have 15-1/2 more months to grow if you contribute on January 1 of the previous year.
11. Deduct personal bad debts. If your best friend borrows money and then skips town, you may be able to deduct this non-business bad debt as a short-term capital loss on your tax return up to $3,000.
TurboTax will ask you simple questions about your life events when you file your taxes so you can take advantage of valuable tax deductions and credits and get your biggest tax refund.