11 Ways to Reduce Next Year’s Tax Bill

These are the things you can start doing right away to reduce your tax bill next year.

If you claimed the right number of dependents and standard deductions on your 2016 federal income tax return and you still ended up owing the IRS, you’re probably looking to avoid a repeat performance next year. Luckily, there are several ways to increase your chance for a refund (or at least reduce the amount you’ll owe) and you don’t have to be a tax whiz or accountant to take advantage.

Here are 11 ways you can pay less in federal taxes for your income return next year.

1. Contribute to a 401K or IRA

Contributing to a retirement fund is an important way to ensure financial independence in your golden years, but it can also convey short-term tax benefits. In most cases, the contributions you make to your 401K and IRA plans are tax-deductible and are not included in your taxable income at the end of the year. (Note: If you didn’t contribute to an IRA in 2016, you still have time. You have until April 18 to contribute up to the maximum amount and shave off a good chunk of your tax bill. Filed your taxes already? That’s OK. You can file an amended return to reflect the contribution.)

2. Buy a Home

There’s a distinct tax benefit to home ownership. The interest you pay on your mortgage is tax-deductible, and the interest is front-loaded. For the first several years, most of your mortgage payment goes toward interest, which will drastically reduce your adjusted gross income at tax time. Want an extra boost for your taxes next year? Consider paying January 2018’s mortgage payment in December to get a tax benefit before the end of the year.

3. Donate to Charity or Volunteer

You probably know charitable donations can be itemized and deducted from your income, so you’ll want to save receipts anytime you donate cash or items to charity. You can even deduct miles you travel for volunteering or other charity work.

“Miles you travel on behalf of a charity are deductible at 14 cents per mile for 2017,” said Gail Rosen, CPA.

4. Start a Home Business

Starting a home business can provide you with a new source of income and allow you to take deductions off any income the business generates.

These deductions include business costs you incur throughout the year, a portion of your mortgage and utilities if you use a home office and the cost of goods needed to keep your business running. You can even deduct startup costs.

“Any expenses that are incurred before the first sale are ‘start-up costs,’” Rosen said. “These costs cannot be deducted until the first sale. Then they are deducted over 15 years and you can deduct the first $5,000 in the first year.”

5. Search for a New Job

If you hunt for a new job in your field this year, you can write off some qualifying expenses as you search. There are exceptions, but potential write-offs include things like clothes or travel.

“If you looked for a new job in 2017, you should be aware of the income tax deduction that may be available with respect to job-search costs,” Rosen said. “Qualifying expenses are deductible even if they do not result in a new job being offered or accepted.”

6. Open a Flexible Spending Plan

Many employers offer flexible spending plans that let you contribute toward yearly medical expenses pre-tax. These contributions typically don’t count toward your taxable income.

7. Deduct Medical or Dental Expenses

Many medical and dental expenses are tax-deductible. According to Rosen, the cost of getting to and from medical treatment is deductible at 17 cents per mile, plus the cost of tolls and parking, and dependent expenses are also deductible.

“If you cover the medical cost of dependents, these can be deducted. Additionally, if you are covering the costs of an individual who would qualify as your dependent except that they have too much gross income — for example, an elderly parent — you may be able to deduct these costs as well,” said Rosen.

8. Education-Related Expenses

Current and former students have many eligible deductions and credits related to their education expenses. Paid student loan interest and tuition and fees can be claimed as deductions. Eligible current students can also access the American Opportunity Credit, which can cover up to $2,500 annually for four years, and the Lifetime Learning Credit, which can cover up to $2,000 per tax return.

9. Install Solar Energy

Homeowners who install solar energy systems in their home can get back tax credits at up to 30% of the cost of installation. This credit will begin to decrease after 2019 so you may want to act soon if you’re planning on installing solar panels.

As an added bonus, solar energy can significantly reduce your energy bills.

10. Hunt Down Every Available Tax Credit

We’ve named several tax credits above, but there are more, including credits for adopting children, the cost of child care and low-income households. Tax credits are more valuable than deductions, as they reduce your taxable income on a dollar-for-dollar basis, so make sure you’re taking advantage of every option.

11. Get a Pro to Do Your Taxes

No matter how much research you do, a professional may be able to identify tax deductions and credits that hadn’t occurred to you. Paying a reputable professional you trust can help you stay organized and minimize your tax liability. Here’s a handy guide to finding the right tax professional for your needs.

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Can I Deduct Work Clothes on My Tax Returns?

It's the answer you get to a lot of tax questions: It depends.

Q. I’m thinking of taking a new job and I would have to wear suits every day. I own one suit. Can I deduct the costs as necessary and unreimbursed? 
— Working Joe

A. Congratulations on the job.

Your question is a good one, but it’s not as simple as you’re hoping.

The IRS under certain circumstances allows employees to deduct unreimbursed business expenses, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

“These expenses are subject to a 2% limitation,” Kiely said. “This means if your unreimbursed employee business expenses are greater than 2% of your adjusted gross income, you can deduct the amount that exceeds 2%.”

According to IRS Publication 529, “Miscellaneous Deductions,” you might be able to deduct the following expenses:

1. Business bad debt of an employee.
2. Business liability insurance premiums.
3. Damages paid to a former employer for breach of an employment contract.
4. Depreciation on a computer your employer requires you to use in your work.
5. Dues to a chamber of commerce if membership helps you do your job.
6. Dues to professional societies.
7. Educator expenses.
8. Home office or part of your home used regularly and exclusively in your work.
9. Job search expenses in your present occupation.
10. Laboratory breakage fees.
11. Legal fees related to your job.
12. Licenses and regulatory fees.
13. Malpractice insurance premiums.
14. Medical examinations required by an employer.
15. Occupational taxes.
16. Passport for a business trip.
17. Repayment of an income aid payment received under an employer’s plan.
18. Research expenses of a college professor.
19. Rural mail carriers’ vehicle expenses.
20. Subscriptions to professional journals and trade magazines related to your work.
21. Tools and supplies used in your work.
22. Travel, transportation, meals, entertainment, gifts and local lodging related to your work.
23. Union dues and expenses.
24. Work clothes and uniforms if required and not suitable for everyday use.
25. Work-related education.

No. 24 on the list is the one we’re talking about.

You can deduct the cost and upkeep of work clothes if you must wear them as a condition of your employment and if the clothes aren’t suitable for everyday wear.

“The second requirement is the stickler of why most workers can’t deduct their work clothes,” Kiely said.
Workers who may be able to deduct the cost and upkeep of work clothes include delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes and transportation workers.

Musicians and entertainers can deduct the cost of theatrical clothing and accessories that aren’t suitable for everyday wear, Kiely said.

Interestingly, he said, work clothing consisting of white cap, white shirt or white jacket, white bib overalls and standard work shoes, which a painter is required by his union to wear on the job, isn’t distinctive in character or in the nature of a uniform. Similarly, the costs of buying and maintaining blue work clothes worn by a welder at the request of a foreman aren’t deductible.

Kiely said you can deduct the cost of protective clothing required in your work, such as safety shoes or boots, safety glasses, hard hats, and work gloves. Examples of workers who may be required to wear safety items include carpenters, cement workers, chemical workers, electricians, fishing boat crew members, machinists, oil field workers, pipe fitters, steamfitters and truck drivers.

“Unfortunately for you, suits, white shirts and ties are for many ordinary street clothes and are suitable for everyday care,” Kiely said. “You can wear business attire to weddings, funerals or church on Sundays.”

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Renting Out Your Home? 9 Expenses You Can Write Off

Here are some tax deductions home renters should know about.

Home sharing through sites like Airbnb, VRBO and HomeAway are becoming more and more popular. My family jumped on the Airbnb hosting train recently, and we made a tidy little side income in January renting out our spare room. I won’t have to pay taxes on that income until next tax season, but I’m already wondering what expenses I can write off.

It turns out that lots of Airbnb host expenses are deductible, and those deductions work for other home-sharing services as well.

The Basics of Taxes & Home Sharing

Renting out a part of your home is similar to becoming a landlord for an entire property, and it’s a lot like running a small business. The general IRS rule is that you can deduct expenses that are “both ordinary and necessary” for your business. But you’ll pay taxes on any income that you earn over and above those deductions.

There’s one caveat: the 14-day rule. If you rent part or all of your primary residence to others for less than 15 days out of the year, you don’t have to report that rental income, but you can’t deduct any expenses.

If you really like being a host, though, and rent all or part of your home for 15 days or more, you’ll have to report the income. So you’ll want to take all the deductions you possibly can. When it comes to deductions for rentals, you need to be careful, though. You can only deduct expenses that were spent on your business.

So if you buy new bath towels that your renters just happen to use in your shared bathroom, you can’t deduct the full cost of the bath towels. But if you buy linens just for your Airbnb renters, you can deduct the full cost.

With that in mind, below are some expenses you might deduct.

9 Expenses You Could Deduct

1. Service Fees: Most short-term rental services charge hosts a fee that comes off the top of the rent paid by the guest. Even if this fee comes out of the guest payment before it hits your bank account, you can deduct it as a business expense.

2. Advertising Fees: If you pay for any advertising outside of that offered by the rental company (and, therefore, covered with your service fees), deduct those expenses.

3. Cleaning & Maintenance Fees: If you buy cleaning supplies for your rental room, deduct those. If you pay a professional for cleaning, deduct that expense, too. Any maintenance costs related to the rental property are also deductible. If you pay for whole-house maintenance, such as a furnace tune-up or a roof replacement, a part of that cost will be deductible.

4. Utilities: If you’re only renting part of your home part of the time, you’ll split the utilities — part as a personal expense and part as a business expense that can be deducted.

5. Property Insurance: If you need to pay more insurance on your home because of having renters present, you can deduct the extra cost. Even if your property insurance fees haven’t increased, you can write off part of the expense as a business expense.

6. Property Taxes: The same goes for property taxes: You can write off the portion of your property taxes equal to the portion of your home being rented.

7. Trash Removal Services: Services that you pay the municipality for can be deducted, because they’re both reasonable and necessary.

8. Property Improvements: You can deduct the cost — or the interest paid on a loan, if you don’t pay cash — of improvements made to the property if those apply to the rented area.

9. Furniture, Linens & Food: You presumably provide guests with at least a couch, if not a bed. If you buy new furniture for your guest room, you can deduct that. You can also deduct the cost of linens, curtains, shower supplies, or food that you provide to your guests.

Splitting the Expenses

Unless you’re renting your whole home for the full year, you’ll need to prorate these deductions. In short, you can only deduct these expenses when they actually apply to the rental space while it’s being rented.

As you can see, things can get hairy! If you decide to host through Airbnb or another similar service this year, here’s what you need to do:

  • Keep detailed records. Know exactly when you had renters and for how much. Keep all your receipts related to expenses for the rental, or for improvements or utilities for your whole house.
  • Know your local laws. In some cases, you may have to pay additional local taxes when you do a short-term rental. Get familiar with those laws, which vary by state and locality.
  • Get a professional to help. Because these issues are so complex, it’s best to consult with a tax professional about your rental income, especially if you made a decent amount of money through the year. You want to take all the deductions you can to lower your tax bill. But you also want to make sure you’re doing it legally.

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The Wackiest Things Small Business Owners Try to Deduct

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As a small business owner, you want to take every legal tax deduction you can to lower your tax bill. But lingerie? A petting zoo? Daily breakfast eaten at your desk? As it turns out, one of those three items passed IRS scrutiny, proving that what’s crazy for one business to try to deduct could turn out to be fine for another.

Firearms was a popular response mentioned by several experts asked to share some of the unique items for which they’ve seen business owners try to get a tax break.

“A client tried to deduct the cost of a shotgun,” says Steven J. Weil, Ph.D., EA, president and partner of Fort Lauderdale firm RMS Accounting. “The reason given was, ‘I am a pharmacist and I need to protect myself in case someone wants to break into my house looking for drugs’.”

Another small business owner tried to deduct the cost of a concealed weapons permit class because they claimed it would allow them to “protect their office,” says Jeffrey Beebe, a CPA in Boise, Idaho. The problem? “They didn’t do anything that represented any kind of special risk,” he says.

And Thomas J. Williams, a tax accountant who operates Your Small Biz Accountant, LLC, said a client thought their “concealed weapon and permit would be deductible since it would be used for security purposes at the office.” He had to point out to the client that for an item to be deductible, it “must meet the necessary and ordinary test for the industry type. The client did not keep cash on site, nor were they located in an overly crime-ridden area; a general sense of feeling safer by owning a gun would not qualify as reasonable business expense.”

Off the Wall … But Deductible?

“A purchase from SexyHighHeels.com,” says Donna Merrill, business coach, tax expert and founder of Business Untangled, describing surprising items her clients have tried to write off. That purchase turned out to be a personal gift, purchased on a business credit card (another no-no). It didn’t fly. But two other unusual ones did:

  • A petting zoo for a direct sales home-based business. “Positioned strategically on the tax return with very visible notes to be seen upfront, this deduction continued to be accepted by the IRS for numerous years,” she says.
  • A Playboy subscription. “This expense was actually put through the scrutiny of an audit,” says Merrill. “It was a legitimate expense for the taxpayer, who was a photographer who did boudoir photography.”

“Clothing and shoes” are the ones that top the list of creative deductions Andrew G. Poulos, principal of Atlanta-based Poulos Accounting & Consulting, Inc., sees clients try to take. “Other crazy deductions I have seen include expensive gifts to their spouse, which include jewelry, lavish trips and even lingerie as a ‘gift.’ ”

Meals and entertainment deductions can trigger an audit if the business owner isn’t careful. “In my experience, the most abused expense is meals and entertainment,” according to Williams. “Clients are under the wrong impression that it’s a free for all. I once had a client try to deduct their daily breakfast because he happened to be speaking on the phone with a customer or sitting at his desk completing paperwork.”

Folasade Ayegbusi, founder of Accountingwithfolasade.com, says she’s seen a business owner try to deduct the occasional “alcohol run” under meals and entertainment. “Now, if the doctor prescribed you alcohol, then yes, we can deduct it,” she says.

Is Fido Deductible?

Pets can be expensive, and no doubt a tax deduction to lessen the burden would be nice. Some entrepreneurs do try. One of Weil’s clients, for example, tried to deduct the cost of their dog saying, “He is the company mascot, and we provide medical coverage for our employees.”

Joshua Zimmelman, owner of Westwood Tax & Consulting, says he’s had clients try to deduct vet bills and the cost of pet food by claiming their dogs were doing double duty as “guard dogs.” Beebe also had a client who tried to deduct the cost of their pet German Shepherd by claiming it was a guard dog.

Hobby or Business?

“People try to wrap their hobbies — from a kid’s soccer team to auto racing — into their business,” says Crystal Stranger, EA and president of 1st Tax. “It’s a thin line often between what does and does not fly when it comes to making something personal be business-related by calling it advertising or marketing,” she warns.

One test: Is it highly related to your business? She gives this example: “If you have a steer-roping team and run a business that builds saddles for steer roping, then the activities of competing your team and traveling to events are likely to be fully deductible. Whereas if your business is insurance, you will have a harder time connecting that to being a profit center.”

Vacations & Beach Homes

Personal vacations disguised as a business trip are another potential tax trap, warns Avo Asdourian, EA and founder of VirtualTaxAccountant.com. “If the deduction is for a convention and you are audited, the IRS will require the conference name and supporting registration documents, and proof that you attended the conference at least eight hours a day,” he explains. He adds, “If you call your vacation a business meeting, then you need to provide the people you met with and a synopsis of the business meeting and the outcome of the business meeting.”

One of Beebe’s clients tried to deduct a $600,000 catamaran used to entertain clients once or twice a year. Another hoped to get a tax break by claiming a deduction for a cabin deep in the woods, as well as the snowmobiles used to get there in the winter, because it was used occasionally to entertain clients.

Clients have tried to come up with “elaborate schemes” involving ”foreign companies owning nice houses on even nicer beaches,” says Austin Carlson, a CPA and associate at Gray Reed & McGraw. His answer is “not deductible,” he says.

Protect Yourself

For an expense to be deductible, the IRS says “it must be be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.” But in many cases, business owners attempt to deduct a purely personal expense, says Williams.

As seen from the example of the Playboy subscription, some unconventional purchases may be deductible in the right circumstances. Make sure you keep good records and consider working with a qualified tax professional with experience helping small business owners.

But beware tax preparers who promise big deductions before reviewing your situation. “Don’t use anyone who suggests that you hide income or take write-offs you know you aren’t entitled to — this is a tip-off that the preparer is shady,” warns Asdourian. “If the IRS catches the preparer, all the preparer’s clients may come under audit.” Conversely, the wrong preparer could mean you miss out on deductions you are entitled to take.

Just remember the consequences if you come under the microscope of the IRS. The agency could put a lien on your business, which can have a major negative impact on your personal credit (if you’re a sole proprietor) and your business credit scores.

“There are always opportunities to plan legally within the law,” says Carlson, “but if it sounds too good to be true, it’s probably a one-way ticket to a massive IRS headache.”

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Can I Deduct Medical Expenses When I File Taxes?

Yes, certain medical expenses can cut your tax bill, but you've got to reach this threshold first.

Q. I pay pre-tax premiums for health care to in my paycheck and I have a health savings account (HSA). Are there any medical expenses I can deduct?
— Trying to save

A. Health care costs can be a big line item in your budget. If you’re able to deduct some of the costs, it may take the sting out of it.

However, you can only deduct the amount of expenses that exceeds 10% of your adjusted gross income (AGI), said Altair Gobo, a certified financial planner with U.S. Financial Services in Fairfield, New Jersey.

If you’re 65 or older, you have a lower threshold, Gobo said. The expenses only need to exceed 7.5% of your AGI for 2016. The senior exemption will go away in 2017.

Not every expense is deductible, but lots are.

Equipment, such as crutches, wheelchairs, artificial limbs and hearing aids are deductible, Gobo said. So are dental services, doctor’s appointments, nursing services and hospital services — as long as you haven’t been reimbursed for the cost by your health insurance company.

If you renovate your home because of a medical condition or disease you may be able to deduct the costs, Gobo said.

The key is that deductible expenses must be unreimbursed expenses.

“That means if you pay for an expense but get reimbursed by your insurance company or anyone else, you can’t claim that expense as if you paid for it,” Gobo said.

He said you can claim expenses the year you paid them or when they were charged if you used a credit card.

Also, if you pay medical expenses from your health savings account, you may not include these payments when considering your deductions.

“Make sure to keep any receipts from doctor visits and pharmacies, bank statements, and credit card statements showing where you paid for services, supplies, and any insurance premiums paid,” Gobo said. “Keeping track of your expenses will save time and headaches when filing your taxes.”

If you’re not sure, talk to your tax adviser or financial professional.

Wondering what else you can do to save some money on your taxes? Here’s 7 more ways to cut your tax bill.

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Business Credit Card Fees That Are Tax Deductible

Here are some business tax write offs to keep on your radar.

Many of us use credit cards every day. We earn rewards points and make shopping and paying for goods easier through the convenience of not having to carry around cash.

Those same perks hold true for business cards as well. But if your business credit card has expenses and fees attached to it, do you know which of those are tax deductible? If you don’t, you’ll be happy to learn that it’s actually quite a few. It turns out that some of the best business credit cards are a lot better at helping you get a break on your taxes than personal cards. In fact, nearly every fee that you incur on your business card can be written off.

Annual Fees

Annual fees on a business card are tax deductible. This may be a great way to justify getting that card with the steep annual fee that also has amazing rewards. Yes, you can write it off, but keep in mind that the primary use of the card needs to be for business purposes and not for personal use.

Late Fees

Hopefully you’re not incurring late fees on your credit cards, but mistakes happen and you sometimes forget to make a payment. Those fees can be written off for your business taxes. Of course, it’s always best to call the company and explain you simply forgot and ask if they can waive the fee this time; saving $35 is almost always going to be better than claiming a $35 tax deduction.

Interest Charges

Again, in an ideal world you won’t be paying interest on any of your purchases. But there are times when you need equipment, and there just isn’t enough cash in the bank to pay for it right away. Those interest charges are all tax deductible.

Swipe Fees

As a business owner, you pay the credit card company every time someone uses their card to pay you. These are always business-related expenses and fully tax deductible.

Miscellaneous Fees

There are sometimes other fees associated with using a credit card. For instance, do you need cash? Your cash advance fees are deductible (although most financial professionals still don’t recommend this expensive way of accessing cash).

Maximizing your Tax Deductions as a Business Owner

The best part about deducting credit card fees as a business owner is there is really no stipulation on how big your business has to be. In fact, if you use a personal credit card and incur expenses, you can deduct them (as long as they are business related). That’s great news for even those who have a side business.

If you think you’ve been leaving credit card-related tax deductions on the table, it’s a good idea to go through your card statements before filing your taxes and add up all the fees. You could reduce your tax liability considerably if you’re using your credit card, whether business or personal, for business use.

And don’t forget that you can track how your credit card spending is impacting your credit by checking your two free credit scores, updated every 14 days, at Credit.com.

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Are Your Dog’s Expenses Deductible?

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Q. I show my dog at dog shows, and sometimes he wins money. If I have to declare it as income, can I deduct things like dog food and vet bills? — Owner

A. You have to prove that this is a business and not just a hobby.

If you are in a business of training dogs for dog shows, then any expenses related to the business would be tax deductible, said Ken Bagner, a certified financial planner with Sobel and Co. in Livingston, New Jersey.

He said the burden of proof falls on you to show the IRS that you are not conducting a hobby and are actually involved in a business.

Bagner said you may consider setting up a separate business entity, such as a Limited Liability Company (LLC) or an S Corp., to help demonstrate you are conducting a business.

“If it is deemed a hobby and not a business, the income will be taxable and expenses can only be deducted up to the amount of income for the year,” Bagner said. “In addition, the expenses would be have to be listed as miscellaneous itemized deductions on schedule A.”

These deductions have to be over 2% of your adjusted gross income before you can take a deduction, and if you are into the Alternative Minimum Tax, the itemized deductions will not be deductible, he said.

“If you can prove you are in a business, then you can deduct all ordinary and necessary expenses in the business under the IRS code,” he said. “This may include dog food, vet bills, travel expenses and any other expenditures related to the business.”

[Editor’s Note: Remember, it can be tempting to overspend on pets, but, whether for business or as a hobby, you’ll want to be sure you can afford whatever you’re buying for Fido. Otherwise, you risk busting your budget or even going into credit card debt and hurting your credit scores. If you already have credit card debt, you may be able to pay it down more swiftly by prioritizing payments by making minimum payments on all your cards, while putting extra funds towards either the card with the highest interest rate or lowest balance, reviewing your budget for places you can cut back and looking into a balance transfer credit card or debt consolidation loan. You can see how your spending may be affecting your credit by pulling your credit reports for free each year at AnnualCreditReport.com and viewing two of your scores, updated every 14 days, for free on Credit.com.] 

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What Do These Codes on My Paycheck Mean?

Pay stubs list all sorts of important info, from your total amount of earnings for the pay period to your net pay, or how much you take home after taxes. They also list all kinds of details about your withholdings, or the difference between your taxable earnings and your net pay.

Withholdings include federal taxes, state taxes, Social Security and Medicare. But depending on where you work and important events in your financial past, such as divorce or a tax lien, your pay stub could list even more.

Since a handful of commenters have voiced interest in learning what some of these codes really mean, we tapped Loren Downey, director of payroll practice for Namely, an HR and payroll firm based in New York, for some explanation. Here’s what she told us.

Personal Information

Every pay stub generally includes the company name and phone number, in addition to the employee’s annual salary and personal info such as her name, address, filing status, exemptions and net pay.

“Maybe further down, you’ll have a breakdown of their pay through that time period, listing deductions and taxes taken, so you can do the math,” Downey said. “You’ll come to a net figure, which should be what you’ve gotten through direct deposit,” that is, if you’re enrolled in this type of payment plan with your employer.

Company-Specific Codes

Where things get complicated, Downey said, is when companies list codes on their paycheck specific to how they do business or the benefits offered to workers. For example, some businesses may list health insurance as HS while others may call it HI. It’s all about whatever makes sense to the company, said Downey, so it’s not uncommon for codes to vary.

Common codes include the self-explanatory 401K for retirement savings contributions and 401K ER, which refers to an employer’s contribution if the employee receives a company match, said Downey, who adds that some companies like to personalize their codes, as with a bonus employees may know about.

Financial History Codes 

If, for some reason, your child support is being taken out of your paycheck or you’ve had wages garnished, this will generally appear as GARN or CHSPPRT, Downey said. “Generally, [these codes are] intuitive.” For instance, LEVY could mean a tax levy.

The bottom line is simple, said Downey: “If you see something on your pay stub and you don’t know what it is, you should be asking your HR or payroll person to explain it to you.”

And if you’re trying to recover from financial events in your past, make sure to stay on top of your credit. Items like tax liens or judgments can not only lead to garnishment but can also wind up hurting your creditworthiness and you may want to take steps to improve your credit scores. You can see where you currently stand by viewing two of your free credit scores, updated each month, on Credit.com.

More Money-Saving Reads:

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5 Things You Can Do Now to Get a Tax Refund Next Year

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If you aren’t getting a tax refund this year, it might be a good idea to sit down now and figure out what adjustments you can make to ensure you do get one next year. Here are five things you can consider to help make that happen.

1. Adjust Your Withholdings

If you’re truly looking to get a payout come April, you may want to adjust your withholdings with your employer so you pay more taxes over the course of the year. Or, instead of giving the government a free loan, sit down and review your withholdings and see if you can break even. You can invest that money regularly and actually make a small percentage on what Uncle Sam would’ve held for you over the year. On the flip side, if you are getting a really big payout, here are some ways you can reduce your tax refund so you pocket more of your own money throughout the year.

2. Buy a Home

Owning your own home allows you to claim mortgage interest and property tax deductions, which can definitely decrease the amount you owe come tax time. If you do buy, don’t forget that any points you paid are deductible for that year.

3. Do Some Spring Cleaning

If you have a lot of things around the house you aren’t using or no longer want, you can donate them for a nice tax deduction. Household goods, clothes and other items can all be claimed. There are tools online that can help you figure out what a reasonable fair market value for those donations might be.

4. Start Investing

If your company offers a 401K and you aren’t already investing in it, know that you’re not only missing out on whatever matching funds they offer, you’re also passing up some tax advantages. Similar tax advantages also come with investing in IRAs and employee stock purchase plans.

5. Document Your Job Hunt

Did you take a new job, or are you currently looking for one? You may be able to deduct the costs to get your resume in shape, any fees paid to employment agencies or career counselors and even the cost of any travel you might’ve done during the search as a miscellaneous deduction. Just don’t forget the job must be in your current line of work and only the amount of your miscellaneous deduction that exceeds 2% of your adjustable gross income is deductible.

For more tips, read our guide on how to maximize your tax refund. And remember that keeping your credit in good standing helps you save money throughout the year, on everything from loan and credit card interest rates to mortgages. A good way to know how your credit is faring is by checking your credit scores for free each month on Credit.com and by getting your free annual credit report.

More Money-Saving Reads:

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What’s the Difference Between a Tax Credit & a Tax Deduction?

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The U.S. Tax Code provides tax relief under various conditions in the form of tax deductions and tax credits. While both of these can save you money, they work very differently. Additionally, there are business tax deductions which are not covered here.

In order to understand how tax deductions and credits operate, it is necessary to provide some basic taxation definitions. A person’s gross Income is “all income from whatever source”. Adjusted gross income (AGI) is gross income minus certain adjustments to income like deductible IRA contributions. AGI is reported on Line 4 of the Form 1040EZ, line 21 of the Form 1040A, and Line 37 of the Form 1040. Most deductions, however, are based on something called modified adjusted gross income or MAGI, which is generally AGI plus many of the adjustments from gross income used to calculate AGI. So MAGI typically falls somewhere between gross income and adjusted gross income.

Our federal tax system operates using graduated or marginal tax rates. As your income increases, the rate at which your income is taxed increases as well. For example, in 2016 the lowest tax rate is 10% for a single filer’s AGI below $9,276, while the maximum rate is 39.6% for single filers whose income is $415,050 or more. There are five other marginal rates in between. AGI cutoffs also vary based upon filing status. Those who file married filing joint returns normally have higher AGI cutoffs.

Varying Levels of Relief

Tax deductions provide varying levels of relief based upon this marginal tax bracket. Normally, the higher your tax bracket, the higher your tax savings from a deduction. So, if you qualify for a $1,000 tax deduction, then the tax savings from that deduction would be $280 for a taxpayer in the 28% marginal tax bracket ($1,000 times 28%). Keep in mind that deductions can be limited or even completely eliminated at higher income levels through something called a phase out. For example, up to $2,500 of qualified student loan interest may be deducted from income as long as your modified adjusted gross income is less than $80,000 (single filer). If you are fortunate enough to make at least $80,000, then you are unfortunate enough to not be able to deduct some or all of this interest expense.

Common tax deductions include interest paid on your primary residential mortgage (including any points paid to finance or refinance the home), interest paid on a second home, state sales taxes paid, charitable contributions, student loan interest, job search expenses, moving expenses for your first job, and military reservists’ travel expenses.

Tax Credits: Dollar-for-Dollar Reductions

Tax credits are much simpler to understand; they are a dollar-for-dollar reduction in taxes owed. While phase-outs typically apply, tax credits are not based on your marginal rate. So, if you qualify for a $1,000 tax credit, then the tax savings from that credit would be $1,000. Most credits are “nonrefundable,” which means that they can reduce total taxes owed to $0, but they cannot create a tax refund when you would not have already qualified for one. Some tax credits are “refundable” meaning that they can reduce your taxes owed to $0 and provide a tax refund on the balance of the credit. For example, the American Opportunity Credit, which is a tax credit for expenses relating to the first four years post-secondary education, provides a credit up to $2,500 for taxpayers whose MAGI is $80,000 or less (single filer). 100% of the first $2,000 of qualified education expenses paid and 25% of the next $2,000 expenses paid qualify for the credit. But this credit is partially refundable. If the credit pays your tax down to zero, you qualify to have 40% of the remaining amount of the credit (up to $1,000) refunded to you.

Other tax credits include the Child Care Credit, Earned Income Credit, Lifetime Learning Credit, and credits for improving your home with energy saving devices. And remember, as you’re checking to see if you qualify for these credits, it’s good to check your personal credit as well. You can learn how taxes affect your credit score, how to check your annual credit reports and also view your credit scores for free each month on Credit.com.

It is very important to understand that each of these deductions and credits require that you understand the limitations and rules governing their use. You should seek the guidance of a tax professional to make certain that you qualify and that you are applying them correctly.

More on Income Tax:

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