Let’s Play Spin The IRS Tax Credit and Deduction Bottle One More Time and Find Some Quite Obscure (and QUITE HELPFUL) Ideas

• IRON100
• January 15th, 2010

While I continue to compile some data on Part 3 of Trader Taxation (particularly that of individuals who trade their Individual Retirement Accounts), I decided to continue our little journey down "Federal Tax Deduction and Tax Credit Lane". I decided to play a little random search on the Internal Revenue Service website and found some rather significant deductions and credits that not even the individual who wrote that article I referenced a few days ago might have dreamed of writing about. Randomness is strength of mine, so I decided to use that strength to find helpful potential tax-liability-reducing information. What better way is there to accomplish that than to enter random terms in a search engine? As Forrest Gump of fiction said, "Life (as a search engine) is like a box of chocolates, you never know exactly what you're going to get." Well, here goes.

Did you know:

1) That you could deduct many if not ALL costs associated with a job search. Well, folks indeed you can, as long as the expenses must be spent on a job search in your current occupation. Those expenses can also include employment and outplacement firm fees and travel expenses pertinent to the job search. If the employer pays you back for those expenses, then you must include that amount in your gross income up to your tax benefit of those expenses from the previous year. All of that information is included in Publication 529 (Miscellaneous Deductions), Tax Topic 508, and Tax Topic 511. Some of these deductions are limited by percentage of income restrictions, so consult those documents for that information. Otherwise you will quickly fall asleep reading this post. Yet, with as many as one in six of you out there having nothing better to do than to read this, I think a deduction or two like this could be of real benefit to you.

2) That families of military veterans killed in the line of duty may contribute, subject to certain limitations, up to 100% of survivor benefits to education savings accounts? That could be a critical help for young families struggling to provide savings for kids’ college education. That is a huge tax credit when one considers the tax benefits associated with Coverdell Education Savings Accounts (ESA). You can find that information at this link and Publication 970.

3) There could be some significant acceleration in depreciation for certain farm and business equipment if you purchased this equipment between 2008 and the present. The reason I mention this one is that the Federal Government does not often grant such acceleration provisions (Anyone familiar with the draconian depreciation, amortization, and depletion reductions in the 1986 Federal tax reforms under President Reagan knows that). If that could affect you, you need to go to Publication 225 (The Farmer's Tax Guide) and review Chapter 7.

4) If you are a dual income family with kids and both parents work, or you are a caregiver to an elderly parent, then you might qualify for several generous deductions for care while you are at work. To read about these topics, see Publication 503. As those expenses increase, it would be a good idea to check and see if you qualify for deductions or exclusions from income specified in that document.

5) That you might be eligible for a tax credit for the adoption of a child (including a special needs child). Topic 607 covers this subject. Your family could qualify for up to $9,000 in tax credits (which can be applied directly against taxes). This total would include court costs and necessary adoption fees. One needs to check Topic 607 for those specifics.

6) That you might be able to take the child tax credit and claim the child and dependent care credit at the same time under certain circumstances. That credit would be of benefit to all who have a sick or disabled child and could result in a significant reduction in income tax liability. Go to this IRS link for more information.

As you can see, there are some significant Federal Tax deductions and credits for all kinds of individuals, small families, and small businesses. What does this once again prove? For one to get the most out of deductions and tax credits, one must do one's own homework. Certified Public Accountants, Enrolled Agents, and tax attorneys are indeed smart, but "only you" (stealing a phrase from Smokey Bear) can be inquisitive enough to ask questions and look up information. The Internal Revenue Service also does not think you are bears either. Instead, it thinks you are sheep and will follow blindly without asking question. Do not be one of the "sheeple". Instead, be an intelligent and aware taxpayer and citizen, and exercise your right to minimize your tax burden. Being a “sheeple” often leads to "baaad" financial decisions. (Please, no one throw food at the screen, reacting negatively to an obviously bad pun could destroy electronics and lead to a possible electrical fire).

I will continue up until April 15 to scour the internet and the IRS website to find possible new additions to this subset of income tax reduction possibilities. You will, however, simply have to forgive my sick sense of humor today, as it is that special day, January 15, 2010. That is the day that fourth quarter 2009 estimated taxes are due for the self-employed like me. It is such a time of great joy…NOT.

Once again, we would request that those readers who wish to contribute to StockTwits community blog of personal finance contact me at buffalotrader100@gmail.com .

Also, do not hesitate to make suggestions for new topics. Our goal is to serve the StockTwits community with essential information with regard to finance, personal investing, tax reduction, saving, and cutting costs. Your comments make us better, so let use hear your voices. We will respond in kind.

Tickers: Child and Dependent Care Credit, Child Tax Credit, Military Education Tax Credits, Publication 225, Publication 529, Tax Topic 508, Tax Topic 511, Topic 607

blog comments powered by Disqus