It's time to consider how you can save money on your taxes to add to your savings for your home down payment. Taxes are something we all have to face annually, but there is no need for taxes to have an impact your dream of owning a new home. In fact, you should actually be able to save some money by taking advantage of common deductions that get overlooked every year.
Saving Money By Filing Your Taxes Online
Are you paying someone to file your taxes for you? Today, with the access that we are granted via the Internet we can file our taxes with minimal to no filing fees. The following methods can help add money to your home down payment savings account.
- The Internal Revenue Service has partnered with several different income tax programs to provide free federal and tax filing software online.
- Don't purchase software packages at your local office supply store, instead search online and you should be able to find the same filing programs for savings as much as $10 less per package.
- Don't use "pre-funding" methods of collecting your income tax refund before you would normally get it. This option while convenient can be very costly.
Fund Your IRA To Save For Your Down Payment
Funding your IRA account to the maximum will help you save for your first mortgage down payment. While money placed in your IRA is post-tax money, you will be able to grow it tax free which makes sense if you have at least five years until you plan on purchasing your first house. (If you are less than five years away from purchasing your first house, it probably makes more sense to leverage a high yield savings account since stock investments may experience volatility in the short run.) Check carefully to see what your maximum contribution to your IRA is and take full advantage of it. This deposit to your retirement account shouldn't be looked at as reducing your ability to save money for your down payment because you can use up to $10,000 from your IRA to fund the down payment of your first house.
- IRA contributions are $4,000 if you are under 50 and $5,000 if you are over.
- IRA contributions help you save for your down payment and retirement.
Do You Work At Home? Save Money On Your Taxes!
If you have a home office carefully check the requirements for home office tax deductions and take full advantage of them. This is not limited to homeowners. Renters can take advantage to them as well. For instance did you know you can deduct:
- Office Deduction - You can deduct the "part" of your home that you work from.
- Utilities Deduction - Do you pay extra for Internet connections? Deduct them!
- Equipment Deduction - Check out the amortization for equipment deductions.
Child Deduction Credits
You are probably aware that you can take the standard deduction for your children, however you want to check the tax rules for other deductions that you may be eligible for. You can add substantially to your new home down payment by checking for all deductions. One such example: day care payments. Day care payments are not limited to full time day care. You have the opportunity to deduct after school care, after school programs fees and other type of child care deductions. You cannot deduct summer camp as day care.
Car Purchase Deduction
If you bought a car last year you are entitled to deduct the sales tax that you paid on that car from your tax liability giving you more money to save towards your new home down payment.
Deduct Losses on Stocks And Bonds
Did you know that you can carry losses from stocks and bonds over for multiple years? The Internal Revenue Service understands that we all lose money on stocks from time to time. There are provisions in the tax code that allow for you to carry these losses over.
Student Loan Interest
Are you still paying a student loan and feeling that it's taking away from your ability to save for your home down payment? Deduct the interest you're paying on your student loans and you'll see that you can increase your down payment savings fund.
It's strongly recommended that you file your own taxes as a way of saving money (this alone will save you at least $250 per year). Filing yourself doesn't mean you should ignore the deductions you are entitled to! Read up on all deductions you feel might be coming to you and don't miss any of them. You'll have more money to save for your new home down payment. Interested in learning more about taxes? Check out our article on the tax benefits of owning a house.
This article is written by guest author Doreen Martel exclusively for Save For House.