Hi everyone my name is Nancy Patterson and my friend Mark Patricks from League of Power asked me to write to you about the way I live my life. When I asked him why the bloody hell would I do that. He said for money and I hastily agreed. After all, I like making money as much as I do saving.
Mark wants me to tell you how to save money when you book a 4 star vacation or when you buy yourself a new bedroom set. And all that’s nice, but to me it’s all foolishness. And I don’t want to talk about your “princess problems”. I want to talk to you about how to reduce the amount of money you spend on everyday items and how to increase the amounts you get from your accounts. Simple as that. When it comes to living rich and retiring, reducing your outgoings is just as important as the cash you have in the bank.
I won’t tell you to wait for your hero to come riding in on a white horse and rescue you from your money troubles as long as you don’t ask me asinine questions about how to save on financing charges for your BMW.
So let’s get to it. My first bit of advice is going to save you the most amount of money you’ll spend all year. Try to think of what is your biggest expense. Your first guess is probably your house or your car but you’re wrong. And you’re wrong by tens of thousands of dollars. The biggest check you write every year is to your favorite uncle, Uncle Sam.
Uncle Sam gets anywhere between 25-40 cents of every dollar you make. Not bad for a SILENT business partner. And nothing chaps my hide more than someone with their hand out. So this month while your gathering your receipts, W2s, 1099’s and itemizing your deductions take a look at this list of some of the most overlooked deductions you can take to save yourself some extra green in 2010.
1. Your Home. Most people know you can deduct the interest you pay on your mortgage and your property taxes. These are generally the two biggest deductions for home owners. But did you know you can also deduct part of your mortgage if you work from your home. And when you establish a home office you can deduct a host of home related expenses like maid service, decorator fees, insurance on office equipment, utilities, and home insurance.
2. Sales tax. You can either deduct the sales taxes you paid or your state income tax amounts, but you can’t choose both. The choice is obvious for residents of the seven states that do not collect state income taxes but do impose state sales taxes: Florida, Nevada, South Dakota, Texas, Washington, Wyoming and Tennessee, which taxes only dividend and interest income. The measure also allows for deductions of local sales taxes. So ask yourself have you made any big purchases this year? If so KEEP those receipts. I can’t tell you how many of my friends in Florida neglect to do this.
3. New car. If you bought a new car or motor home after February 16, 2009, and before the end of the year, you can deduct the sales tax paid, up to a maximum purchase price of $49,500 per vehicle, either as an itemized deduction or as a supercharged standard deduction. This one is a national program and doesn’t just apply to the 7 states without a state income tax.
4. Medical expenses. If you spend more than 7.5% of your adjusted gross income on medical expenses, such as insurance, prescriptions, other out-of-pocket expenses, and mileage to and from medical facilities, then you may deduct the amount that exceeds that figure.
5. Self-Employment. Self-employed individuals are allowed a variety of tax deductions by the IRS. These expenses are known as operating costs and are a necessary part of your business enterprise. Operating costs you can deduct as a self-employed individual include: advertising, licenses and permits, business use of your vehicle, materials, office supplies, insurance premiums on business assets, utilities, business debt interest, equipment repairs and maintenance, travel, plus meal and entertainment expenses.
6. Professional advice. If you seek legal or investment advice from a professional you can deduct the fees you pay on your tax return. You can also deduct for things like safe deposit box rental fees, investment service subscriptions, bookkeeper or accounting fees, fees to administer or set up an IRA, and bank fees.
7. Work Expenses. You can deduct expenses that were unreimbursed by your employer. Items like professional and association dues, work clothes expenses, headhunter fees, parking fees and tolls, dues and subscriptions.
8. New job. If you moved more than 50 miles, you can deduct the cost of getting yourself and your household goods to the new area — including 24 cents per mile for driving your own vehicle for a 2009 move — plus parking fees and tolls.
9. Refinancing points. The year you buy a house you get to deduct all the points paid to get your mortgage. And if you refinance a mortgage, you can deduct the points over the life of the loan. That means you can deduct 1/30th (if it’s a 30-year mortgage) of the points a year. In addition, when you sell your house or refinance again you get to deduct all as yet undeducted points!
10. Reinvested dividends. If, like most investors, your mutual fund dividends are automatically used to buy extra shares, remember that each reinvestment increases your tax basis in the fund. When you do that, it reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares. If you’re not updating your mutual fund cost basis for dividends you receive and have reinvested back into a mutual fund in the form of additional shares, you’re going to end up being taxed on them twice- once when you receive them and later when they’re included in the proceeds of the sale.
It is in your best interest to itemize your federal tax deductions and state tax deductions (if any) to net the largest tax cut you can. The IRS has a handful of publications that identify deductible items. It’s best to have a tax professional look over your tax return before you submit it. And why not because any fees you pay to a tax professional for their advice are also tax deductible!
Look for my article next Wednesday and every Wednesday thereafter. My plan is to tell you how to reduce the amount of money that leaves your wallet without giving ridiculous advice that doesn’t allow you to enjoy life.
You’re never going to hear me say the way to save money is to sit at home every night reading books in the moonlight with the heat off in your home. That’s no way to live life. I like going out to eat and vacationing in sunny areas where my biggest worry is how to get the sand out of my toes just as much as the next guy.
Retiring without worrying about how you’re going to afford it is everyone’s dream. And my advice will get you as close as you want to that goal while still having fun on the journey there.
In the coming weeks I’ll be telling you about saving, spending and about creative ways to increase the amount of money you make.
Till then, stay smart and live within your means.
Good luck and success in your saving efforts,