What are ALL the way to get tax deductions?

Question

Is it possible to owe nothing in taxes if I use all these deductions? Sources?

Answer 1

There was an article in the Wall Street Journal in 2005 that quoted a CPA claiming that, even if you made one million gross, you could still wind up with zero income tax liability.   His contention was in two parts:

1) 100,000 charitable deductions

2) 900,000 tax-free municipal bonds {sometimes labeled "munis".

However, this is flawed.  If you take 100,000 in charitable  contributions, the taxpayer will be subject to IRS scrutiny.  It would also heavily depend upon what he was taking to get 100,000 worth.  There is also what I call the back door tax.  That is, the phaseout of itemized deductions, personal exemptions and the big one: the alternative minimum tax {AMT}.

Next, when calculating alternative minimum tax {AMT}, some municipal bonds are NO LONGER TAX FREE.  I know that sounds difficult to believe, but the IRS does not allow some bonds to be tax-free or even tax-deferred when calculation alternative minmum tax.  The rules change.

Another thing you could do would buy summer homes.  They get broken into every winter.  You could form a corporation and write off as casualty and theft losses without the 10% of adjusted gross income deductible nor the 100 subtracted off for each incidence of theft.   However, if you attempted to do this year after year, the IRS' eyebrows would be raised.  One obvious reason would be:  why is the cabin with the most valuable stuff always the one that gets broken in to.

Realistically, you are not going to reduce your tax to zero unless you have a net operating loss or a carryforward or a carryback of a net operating loss {NOL}.  Here are some ways to lower your tax.  It takes discipline, setting a little time aside to save and classify the receiptsand getting familiar with the tax laws:

You must plan if you are to reduce or eliminate AMT.  WHAT YOU NEED TO FIND, TO DO AND BE ABLE TO ANSWER

1  Form 1098's from the bank, mortgage holding company or HUD, etc.

2  Get TIN, itemized Statement and value of donations from the Donee.  E.g:  Salvation Army TIN is 58-0660607.

The IRS is now a lot stricter in their requirements with regard to giving away automobiles, vessels, aircraft, computers and certain investments than ever before.   The IRS has a new Form called the 1098-C that specifically deals with the charitable contribution of your vehicle.  Do not donate a vehicle, boat or airplane UNLESS the donee provides you with this 1098-C or a written acknowledgement containing all the information required by the 1098-C.   If the donee sells the vehicle, the donee MUST fill in Line 4C or write down when he sold the vehicle, sign it, and or course put his Taxpayer Identification Number.   If the donee does not, you will only be able to deduct the LESSER of the fair market value of the vehicle or what the vehicle was sold for by the charitable organization.  

For donations exceeding $500.00, the donee must supply a written statement acknowledging the donation.

Even if do not itemize, you still MUST attach the Form 1098-C.  For these non-cash donations, the donor may not claim a deduction in excess of what the donor sold the mode of transportation for.

If the vehicle had a value of between $250.00 and $500.00, the donee must provide a statement of any cash received, a description of the property donated and whether any goods or services were rendered in exchange for the donation.  If the vehicle was sold for significantly below fair market value, you may be able to deduct up to $500.  If the vehicle was sold for gross proceeds which equaled or exceeded FMV, you may only deduct the FMV [1098-C or written acknowledge-ment by donee].

If the charitable organization did intervening substantial use or upgrade, there should be a written statement of such.

If the charitable organization intends to sell the vehicle for significantly under FMV, the charitable organization must type up a state-ment detailing such within thirty days of receiving the donation along with a certification that the sale is a direct furtherance of the charitable organization’s purpose of relieving the poor and needy or the underprivileged whom are in need of a means of transportation.

3  The new Schedule B:  did you have any bank or securities account abroad or did you have an interest in any bank or securities account abroad worth more than 10000?  Unfortunately, this includes military and if you emigrated to the United States and you still have an interest in any bank or securities account back home.  If you fail to fill in Part III of the Schedule B, the fine is $10000!  And you must fill it in even if you use the 1040A or 1040EZ.

4  Have you incorporated yet?   Avoid alternative minimum tax for years depending upon your situation.

5  Have a storage space to save all your receipts and keep a diary of all of your expenses.

6  Did you have anything of fairly large or large value ripped off?

7  W-2’s, 1099’s, Schedule R’s.  And, are they correct?  I may have to fill out a revised W-2 Form.

8  If you loan to a friend or relative, make sure you have a written agreement to repay, do not deep discount the interest rate and get their SS#.

9  Keep your state inspection stickers.  Park your most expensive vehicle at your business if possible.

10  Make large purchases for your business in the final quarter of your fiscal or calendar year.

11 Incorporate and set up a SEP or SIMPLE.

12 Make your vacation a business trip.  The rules:

-if less than 7 days, can deduct all the expenses (no largesse) .

-if be more than 7 days  day depart does not count in figuring;  day returning does.

13 Figure your potential alternative minimum tax liability before you refinance at higher interest or higher payments.

14 If you had to fill out a short Form, figure your charitable contributions over the past 5 tax years.

15 If you give away material, clothing, vehicles, collectibles, etc, worth 5000 or more, make sure you get a Statement from an appraiser and make sure it is signed by that appraiser.  When you donate material worth more than 250.00, get the TIN, itemized list of donated items and the worth signed by a representative of the donee.

16 How much did the vehicle cost you are going to use as the vehicle used in your business including tax?

17 If you refinance, make sure you have a business first.

18 Get the EIN or TIN of the Daycare Center or babysitter with regard to your Child and Dependent Care expenses.

19 If you cannot make up your mind to incorporate, become a sole proprietorship and use your home as a business.  Measure the square footage dwelling and the square footage of what you can use for business related items and transactions.

20 Have you moved, will you be on your same employ for at least 39 more weeks and is the driving distance to your job more than fifty miles from your old job?  Save your receipts, keep a journal of your expenses, including storage and meals [reasonable].

21 If you received a Retirement plan distribution and you are under 59 1/2, roll it over within 60 days!!!

22 For 2008, you may be allowed to have a total of 4000 for student loan interest deduction, tuition and fees expense and credit (Form 8863).  If a lot, spread amongst your family according to need.  [but this one may no longer be allowed beginning with the 2008 income tax year].

23 Check what the tenant sent on the 1099 [ordinarily a 1099-MISC] to the IRS if you purchase a property to rent out, an investment vehicle or a property that you intend to rent for a portion of the year.

24 If you are a Daytrader, keep tract of your trades daily using Excel or some program that works for you.

25 Before trading stocks, weigh the advantages and disadvantages of filling out a 475(f) or launch a corporation that trades stocks.

26 When you have real estate, be a material participant.  Save your receipts and keep a diary of your expenses.  When you take a business trip, it is a deduction so long as the trip is business related and has a business purpose.  Make sure you make the decisions and approvals and not a management company that you hire.  IRS auditors study the contract with the management company.

27  What health insurance you carried for each business you had.    Evaluate every year.  You could save money.

28  Are you over 65 and/or legally blind?

29  Do you qualify as disabled on the Schedule R?

30 Tuition and fees statement from a qualified school.    Get it if they did not send.  Submit changes of addresses whenever necessary.

31  There are exclusion limitations for long term medical expenses.  If you exceed 91250 for 2007, the excess is excludable from income only to the extent of actual costs in excess of the IRS dollar cap incurred for long-term care services for the 2007 calendar year.  Amounts in excess must be included in income.  The exclusion of $2450/day (91250/year) is reduced by reimbursements and payments received by anyone for the cost of qualified long-term care medical services for the chronically ill.

32  Did you or your corporation pay alternative minimum tax last year?  

CONSULT ME TIPS  

-        Do not sell stock that you have held for less than 366 days.   This is known as a short term capital gain.  A short term capital gain is treated by the IRS as ordinary income and not a capital gain.  It cannot be short term, otherwise it is ordinary income subject to tax as high as 35%.  A long term capital gain is taxed at 15% and some of it possibly could be taxed at 5%.  

- If you sell your primary or second home in less than two years, you will be subject to capital gains tax AND it will be ordinary income if less than one year.  Your income tax liability could be as much as 35% of the gain!   Ownership and use rule applies.  

- Further, don’t sell an investment wherewith you have a substantial gain:   transfer the ownership o

Answer 2

No way to say what ALL the ways to get tax deductions are without knowing a lot more about you, and having many hours and a lot more space to write an answer.

But yes it's possible to have enough deductions to not owe any tax.