When you earn income, you pay tax. That is why every pay day, you hear a lot of people complaining as they see their pay slip with a huge number of tax deduction. In fact, they may even say they are already earning just to pay tax. And it even gets bigger if you earn more.
But in reality, there are income generating activities that have advantages as to tax. One of which you can engage in to is rental business.
Gaining More Money by Lessening Tax
Aside from your regular paying jobs, you can bring more money to your household if you invest on second properties and put it up for rent. But what is so good about is there are many ways to lessen your income tax legally. Do believe it is an accepted practice, without you cheating or breaking the law.
So what makes it advantageous in terms of tax? Here are 2 main reasons:
1. Tax deductions
2. Tax credits
There are plenty of ways to lower you tax payables and one way to do it is to lower the taxable income. In operating a business, there are expenses that can bring down the taxable amount without even having to reduce or actually shell out cash outright.
Here are some of the items that can be reduced
Interest expense. Are you currently paying for mortgage? Then declare the interest you paid and claim it as a deductible. If you happened to pay more than $600, you should have a mortgage interest statement and it should be attached to your income tax return.
Transportation and Travel. Have you used your personal vehicle for an official business trip? Do you have to pay for a cab fare to get to your rental property to settlement your tenant's problem? Do you have to rent a vehicle to transport oneself to your out of town rental property? Then deduct any amount you used for transportation. The IRS will allow you to do this using the actual expense or mileage rate. Ordinary travel expenses are also acceptable. Just follow the IRS ruling on how to file for such expense.
Depreciation. The house and any rented equipment can be depreciated and can also be declared for deduction. You can claim such deduction if you own the house, if you used it for rental and if the property has a determinable useful life of more than one year (according to IRS Publication 527).
Incidence of casualties and theft that resulted to a loss can be deducted.
Applying all these tax deductions will help you enjoy your extra income. You won't even have anything to complain about.
30% of the cost of installation of the energy-efficient additions, improvements or component of the house, with a maximum 1,500 dollars, can be awarded to the taxpayer who has this in their rental property. In fact, if you have installed solar-powered heaters, wind energy systems and geothermal heat pumps, you can enjoy the 30% tax credit without any ceiling amount. This provision is made available for owners who incurred such expense and met the guidelines set for the year 2009 and 2010.
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