Know your tax laws

Know your tax laws

When it comes to filing your taxes, a key point is to know your tax laws. Not just federal tax laws but also your state and local tax laws. Knowing your tax laws can help you save money such as being able to claim to the maximum amount on certain items for a tax deduction. If someone else is doing your taxes, like a CPA, make sure they know the latest tax laws. It changes all the time. If you’re doing your taxes yourself, it’s important to know the tax laws even if you’re using software like TurboTax. Knowing your tax laws can help you.

I use TurboTax to file my own taxes and it is self explanatory. It guides you through all the categories but it’s up to you to be able to provide the necessary information. One specific area that I thought I knew was the 529 deduction. 529 plans are primarily state plans and tax benefits differ state to state. The state I live in allows a 529 contribution deduction of $2,500 per child. Having two children, I entered $,5000. At least that’s how I interpreted it. After talking to someone about financial independence, we got to talking about college and 529. She told me that her CPA said the law states you can receive a state benefit of $2,500 per child per contributor. With a family consisting of two parents and two children, if you contributed $5,000 to each child ($10,000 total), you can claim a benefit of $10,000, not $5,000 (like how interpreted it). One child has 2 contributors, the father and mother. The second child has 2 contributors, the father and mother. Instead of claiming a benefit of $5,000 contributions, I’ll be claiming $10,000.

Who likes to read up on tax laws? Not me. I like for someone else to do the interpreting for me, like TurboTax. But there are times where knowing the tax laws can benefit you. For the 529 benefit, TurboTax asked how much I contributed. I had one interpretation and come to realize, it can be interpreted differently.

How can you make sure your interpretation is right or not? You can consult a CPA. Another way is to casually make it a conversation topic with friends or colleagues. Finances are known to be a sensitive topic but I’m not suggesting you disclose any numbers. Almost everyone has to file taxes. Why not talk about it.

Knowing your tax laws is good knowledge. At least have a good understanding of it. If you misinterpret them, you could be doing a disservice to yourself by missing out on tax benefits. Make it a conversation topic. Don’t be shy to talk about it. Almost everyone has to file taxes. The better you can interpret tax laws accurately, the more benefit you’ll have. Know your tax laws. If you are interested in following my journey, email subscribe to get alerts of latest posts or follow me on FacebookInstagram, and Pinterest.

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