It is the year end and many people are calling asking about how they can lower there tax bill. Here is my top ten list.
1. Own your home -- Home Mortgage is fully deductible on both the state of Utah tax return (at the moment) and on the Federal Return.
2. Pay a full 10% Donation to your religion of choice -- Normally charitable deductions of more than 2% would trigger an audit. However, living in Utah you have the advantage of living amongst a religious majority that is required to give a full 10% and everyone can take advantage of this.
3. Donate to Katrina related charities -- The charitable deduction limitations are lifted on all Katrina related donations.
4. Contribute 4,000 dollars to your traditional IRA -- If you aren't covered by an employer sponsored retirement plan you are eligible for a full 100 % page one deduction.
5. Purchase a Hybrid vehicle -- They are expensive, but there is a sweet page one deduction on your Federal return, and an even better credit from the state of Utah.
6. Use your car to run errands that are business related -- If you own a business you are eligible to deduct during the last few months of '05 48.5 cents per mile (44.5 cents for 2006) of all business related miles. If you can run errands as an employee you are eligible for the same milage rates, however the deduction is limited to 2% of gross income. Documentation needs to be kept to substantiate the claim.
7. Start a small business -- If you have a hobby that you are talented at, try going into business. Your business expenses are 100% deductible, and you would be eligible to depreciate your assets.
8. Set up a small business corporation -- As a sole proprietor, you are eligible for many great deductions. However, there is a 15.3% tax on the net income of your business on top of the income tax. As a corporation you may be able to limit the amount of SE tax involved.
9. Purchase Assets -- Whether or not you are in business, there substantial deductions available in connection with the purchase of assets. The IRS allows a deduction of estimated sales tax paid for the year with additional large ticket sales tax added on top of the IRS estimated sales tax. Buy purchasing a car or a boat you may be able to have larger deduction than your state income tax paid would have provided, and when you use the state sales tax deduction your state tax refund isn't taxable. If you are in business you are able to deduct as much as 102,000 dollars of 100% business use property costs (limitations apply use a professional)
10. Have a family -- When you get married and have children you are entitled to many tax credits that for many families zero out federal tax liabilities. The child tax credit is 1,000 dollars per child up to three children, and a portion of the credit left over can possibly be refunded. The exemption is 3,200 dollars per person. A family of 5 has 16,000 dollars of write off available in exemptions alone.
The first day of E-File is 1/15/2006.
I hope everyone has a good year.