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Lowering your tax liability

Industry analysts are predicting that a tangible change in the economy won’t be seen until mid-2010, but there are still some things you can do to lessen your tax liability this year.

• Contribute more to a 401k. Any amount you can contribute to a 401k subtracts from your tax liabilities. Taxpayers can contribute up to $ 16,500 if they are under 50 years old and $ 22,000 if they are over 50 years old. There is still some time to increase your contributions and cut tax liability.

• Consider homeownership. It's a buyer's market, and there is a tax credit upwards of $ 8000 for first time homebuyers that runs from January 1st to April 30th 2010, so make hay while the sun shines.

• Pay for a college education. The federal stimulus created tax breaks for college expenses. The American Opportunity Credit, which replaces the Hope Credit, lowers tax liability when taxpayers to meet certain requirements.

• Get a new car. The stimulus plan also included a tax break for new-car purchases. Anyone who buys a new car this year can deduct state and local sales taxes and excise taxes paid on a purchase price of up to $ 49,500. Car.com expert Miles Bradman said, “This is the perfect time to get a new car and not just from the purchase price standpoint. In former years a consumer may have needed a large loan to cover a down payment, whereas now small unsecured personal loans could very well do the trick.”

• Give to charity. Taxpayers who itemize deductions can sometimes write off charitable contributions. Industry analyst Martin Berg of Money.com stated, “A lot of people forget to count their cash gifting when calculating donations. Always include cash and appreciated stock and noncash donations. They can also count out-of-pocket costs to help a charity like 14¢ per mile in travel costs to do charitable work.”

• Self-employed tax breaks. Self employed taxpayers have a lot of ways to deduct from taxes. Costs of equipment, such as fax machines, computers, or printers, can often be deducted, along with any home office expenses, like rent, homeowner's insurance, and utilities.

• Medical Expenditures. Those who itemize deductions, could see a lower tax bill because of medical bills. Taxpayers qualify for this deduction, if their medical expenses exceeded 7.5% of your Adjusted Gross Income. Tax experts recommend keeping track of medical bills, and keep them on file until tax season rolls around.

Use the various deductions wisely

In the end, it is possible to decrease tax liability by using any or all of the above tools. For any taxpayer who believes that he or she may have a large tax liability for 2009, it’s useful to know what the rules are for taking deductions. They can make the difference between having to come up with a substantial amount of money, breaking even, and even getting a refund.

Before you make any decisions concerning tax reporting or the claiming of tax deductions, be sure to get advice from an experienced tax professional.

Tags: Stimulus plan, tax deductions, tax liability