Ask Farnoosh: How Can I Decrease My Tax Liability?

Khalil asks on Facebook: What can I do besides purchasing a home and contributing to my 401(k) to decrease my tax liability? Single no dependents, employed W-2, renting a condo.

A few itemized deductions you may be overlooking include:

Charitable contributions: We all know that contributions to charitable organizations can lower our taxable income, but even expenses related to helping a charity carry some tax benefits of their own. For example you may be able to deduct the cost of hiring a babysitter while volunteering, the ingredients you purchased to prepare meals for a local soup kitchen, and even the mileage getting to and from the charity event.
 
Out-of-pocket-medical-costs: Even with a full-time benefits-paying job, it’s likely that your out-of-pocket medical and dental costs have increased over the years. You may be able to deduct the costs (incurred by you or your spouse) that, in total, exceed 10% of your adjusted gross income. This includes doctor visit co-payments, prescription drug co-pays and doctor-recommended procedures and services not covered by insurance.
 
Moving expenses: If you change locations for work and incur moving expenses, you may be able to deduct part of the costs. “In order to qualify… your new principal workplace must be at least 50 miles farther from your old home than your old workplace was,” says accountant Ebong Eka. 

Charmaine asks via Twitter: At what age do you suggest giving kids an allowance and how much? $10/week ends up being $520 a year on candy and junk!

I don’t think there’s anything wrong with giving a 10-year-old child, say, $10 a week if she’s earned it.  But if you don’t discuss some ground rules and help your child manage the allowance, kids will be kids and she may be tempted to spend that money on junk food. “Just handing them a few bucks a week with no guidelines or expectations enables them to think only about impulse spending on themselves,” says Jayne A. Pearl, author of “Kids and Money Guide to Learning Capital.”

I think once children enter grade school, a weekly amount equal to their age is a safe place to start. So, a seven-year-old can earn $7 a week.

As for developing a healthy allowance system that teaches kids the value of money and that it’s not just permission to buy frivolous things: Agree on an amount to save, donate and spend. Show them there are different ways to use money – it’s not just for buying videogames. There are even some cool online tools like ThreeJars and Zefty to that can help kids visualize their allowance and save up for more significant purchases or donations. 

Allowances should also be tied to doing exceptional work – not a chore that’s simply expected of them.  It should be an earning, not a hand-out. “There are ‘citizen of the household’ chores that they don’t get paid for…like brushing teeth, getting out of bed, cleaning up toys,” says Neale S. Godfrey, founder of GreenStreets.com, a site geared aimed at helping children become financially literate. Above-and-beyond tasks such as tidying up the garage or helping mom or dad organize their workspace at home is more worthy of an allowance.

Finally, another lesson-filled way your kids can earn their allowance is by identifying and solving problems. Writer and dad Jake Johnson recently posted on TheMedium.com how he’s offering his son, Liam, an allowance to “pay attention to the world around him, identify a problem that needs fixing, and propose a solution.” Father and son then negotiate a payment. “For instance, during the fall, Liam noticed the yard was full of dead leaves. He approached me with the proposition to clean up the leaves for payment. We negotiated a $10 fee. He did a great job and made $10 in a couple hours, which is pretty good money for a kid.”

Want to earn chance to win cash? Farnoosh is conducting a survey for an upcoming book on money and relationships. At the end of the survey, learn how to qualify for a $100 American Express gift card giveaway.

Got a question for Farnoosh? You can reach her on Twitter @Farnoosh or email her at farnooshfinfit@yahoo.com.