Regardless of the industry where they work, keeping up with tax obligations is one of the most significant challenges professionals face. Whether your employer deducts taxes and pays you the balance paycheck or you file returns yourself, the taxman can walk away with a sizeable chunk of the wages.
With some detailed research, you can find several provisions offered by the IRS that can help you lower your dues. Read ahead for an overview of how to save taxes from the time you step into the job market and all through your career trajectory.
Tax Saving Starts with Job Hunting
If you’re looking for a new job or better prospects with a higher position or a more attractive salary package with perks, make sure to keep a detailed record of all the job-hunting expenses you incur. These costs can include travel expenses to reach companies for interviews, room fares in case you visit a different city, and food.
As long as you’re trying to upgrade your job or get a new post in the same industry, you can claim deductions of not more than 2% of your adjusted gross income. In other words, the expense should not be more than 2% of your total income remaining after tax deductions. The primary condition is that you should not be a first-time job seeker.
Moving for Employment Costs are Tax-Deductible
Have you just snagged a position in a company that requires you to move more than 50 miles from your current location? The good news is that you deduct the moving costs from your taxable income. This mileage provision applies even if you’ve found employment for the first time and the new job is located a minimum of 50 miles from your residence.
The IRS permits you to deduct all moving costs, and if you’ve chosen to use your personal car or vehicle for transport, you’re allowed 24 cents per mile aside from the tolls and parking charges.
The exciting thing is that you can claim this deduction even if you’re moving overseas. Check with your tax consultant for US expats for more information about using this benefit.
Discuss Medical Benefits with Your Employer
When negotiating your salary package with the recruiter, discuss the medical insurance they’ll offer. Also, talk about the possibility of getting a Flexible Spending Account (FSA). This account allows you to divert a part of your paycheck toward saving for medical care. You can use this money to pay for specific out-of-pocket health costs, including visiting a physician or hospital.
The funds held in this flexible spending arrangement won’t attract any tax, and you can withdraw the money by applying through your employer. You’ll also attach a detailed bill along with a statement that the cost has not been paid by insurance.
Most FSAs become available after you reach a preset deductible, but you can use it to cover dental and eye care, purchase prescription medicines and order new glasses. Although the maximum amount you can claim is restricted to $2,850, that can translate into significant tax savings in income tax and Social Security dues.
Check for Dependent Care FSA
If you have kids under 13 years, you can take advantage of the Dependent Care FSA (DCFSA). This account lets you divert a part of your paycheck before deducting taxes and save money for paying for childcare. Several reimbursement options are available to pay for daycare, babysitting, nanny, nursery school, and preschool costs for younger kids.
Any before and after school care for older kids and summer day camp charges can also be paid out of the DCFSA. Dependent Care FSA also extends to caring for a spouse or family member who is physically or mentally disabled and needs care.
Continuing Education Assistance
Whatever the industry you work in, consistently improving your skills helps you keep pace with the ever-evolving work landscape. With your employer’s assistance, you can avail of a tax-saving provision where the company pays for your courses directly without including information in the W-2 tax form.
You could sign up for all levels of education, graduate courses, and curriculum related to or entirely unrelated to the industry where you work. The costs can be covered out of your pre-tax dollars.
Professionals living and working in the US can take advantage of several tax-saving strategies to lower their liability and improve their standard of living. Check with your tax advisor for more details.
