Legal Tax Reduction Strategies
Tax shelters are any method of reducing taxable income
resulting in a reduction of the payments to tax collecting
entities, which includes state and federal governments. The
methodology can differ depending on local and international tax
laws.
In North America, a tax shelter is generally defined as any
method that recovers more than $1 in tax for every $1 spent,
within a 4 year period.
These tax shelters can be legal and provide legitimate
tax deductions:
* Flow-through shares/Limited Partnerships.
* Retirement plans.
Tax shelters are usually created by the government to
promote a certain desirable behavior, such as to help the
economy; in turn, this generates even more tax revenue in the
long term. Alternatively, the shelters may be a means to promote
social behaviors. In Canada, in order to protect the Canadian
culture from American influence, tax incentives were given to
companies that produced Canadian television programs.
Before getting involved in any tax shelter it is highly
recommended that you seek the counsel of a skilled tax attorney.
Attorney Drew Miles provides an
excellent free DVD
that is a very useful introduction to various tax saving methods
using different legal entities. Obviously, this is an attempt to
garner more business for his firm. Nevertheless, the information
is useful, even if you simply get the DVD in order to learn
about the strategies to discuss with your personal tax attorney.
10 Tax Deductions from home ownership
Your home provides many tax benefits -- from the time you buy it
right on through to when you decide to sell.
1. Mortgage Interest
If you're filing jointly, you can deduct all your interest
payments on a maximum of $1 million in mortgage debt secured by
a first or second home.
2.
Home Office Deduction
This is a very beneficial tax shelter. If you use a portion of
your home exclusively for business purposes, you may be able to
deduct home costs related to that portion, such as a percentage
of your insurance and repair costs, and depreciation.
3. Points
Your mortgage lender will charge you a variety of fees, one of
which is called "points." One point is equal to 1% of the loan
principal. One to three points are common on home loans, which
can easily add up to thousands of dollars. You can fully deduct
points associated with a home purchase mortgage. Refinanced
mortgage points are also deductible, but only over the life of
the loan, not all at once.
4.
Equity Loan Interest
You may be able to deduct some of the interest you pay on a home
equity loan or line of credit. However, the IRS places a limit
on the amount of debt you can treat as "home equity" for this
deduction. Your total is limited to the smaller of:
$100,000 (or $50,000 for each member of a married couple if they
file separately), or the total of your home's fair market value
-- that is, what you'd get for your house on the open market --
minus certain other outstanding debts against it.
6.
Home Improvement Loan Interest
If you take out a loan to make substantial home improvements,
you can deduct the interest, with no dollar limit. However, the
work must be a "capital improvement" rather than ordinary
repairs.
6. Property Taxes
Often referred to as "real estate taxes," property taxes are
fully deductible from your income. If you have an impound or
escrow account, you can't deduct escrow money held for property
taxes until the money is actually used to pay your property
taxes. And a city or state property tax refund reduces your
federal deduction by a like amount.
7. Selling Costs
If you decide to sell your home, you'll be able to reduce your
taxable capital gain by the amount of your selling costs.
8. Capital Gains Exclusion
Married taxpayers who file jointly now get to keep, tax free, up
to $500,000 in profit on the sale of a home used as a principal
residence for two of the prior five years. Single people and
married taxpayers who file separately get to keep up to $250,000
each tax free.
9. Moving Costs
If you move because you got a new job, you may be able to deduct
some of your moving costs. To qualify for these deductions you
must meet several IRS requirements, including that your new job
must be at least 50 miles farther from your old home than your
old job was. Moving cost deductions can include travel or
transportation costs, expenses for lodging, and fees for storing
your household goods.
10. Mortgage Tax Credit
A home-buying program called mortgage credit certificate (MCC)
allows low-income,
first-time homebuyers
to benefit from a mortgage interest tax credit of up to 20% of
the mortgage interest payments made on a home (the amount of the
credit varies by jurisdiction). You must first apply to your
state or local government for an actual certificate. This credit
is available each year you keep the loan and live in the house
purchased with the certificate. The credit is subtracted, dollar
for dollar, from the income tax owed.
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