Strategies to Save Money on Your Current Tax Bill
by Susannah McQuitty
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A guest post from Darrin Mish
So maybe you had a good year, or maybe you had one that wasn’t so good. The truth is, from a tax perspective, the beginning of a new year is the best time to look back upon the past year and make smart, attainable tax goals. This can prepare anyone for when it comes time to file taxes.
Here are several strategies to help you save money on your current tax bill.
1.Make it a point to file your taxes early. On January 19, the IRS accepts e-filings. The quicker you file, the earlier you can look forward to your tax refund. And receiving money early is always a good thing.
2. Go ahead and e-file your taxes with a direct deposit to your bank. As many as 4 out of 5 taxpayers will do their own taxes using software. The rest may have a little bit more tax complexity, and may need a professional to help them navigate the concourse. In this scenario, saving a few hundred dollars by trying to do them yourself may end up costing more money in the long run. It’s a personal choice.
3. Be diligent about retaining receipts for anything from job searching, medical expenses, or the cost of day camp for the children. Of course, there are the bigger expenses that are impossible to forget, like getting married. Keeping your expenses itemized might help you get a bigger tax refund back.
4. Stay organized and gather all the necessary forms, documents, and tax receipts in one place throughout the year. This makes it easy to pull it all together when tax season comes around. Being organized is the key to making tax season “happy time.”
5. If you’re still working and you have an employer provided retirement account, now is always the time to maximize contributions. When you’re putting money away for your retirement, it’s easy to increase your contributions.
6. If you have an IRA account, or in the process of opening one, you can make a $6,500 contribution if over 50 right up until the tax deadline of April 18, and still benefit from a deduction of the previous year. If you’re married, check with your tax consultant to see if you qualify for a saver’s credit.
7. If you’re self-employed, you may be subject to estimated taxes. This applies for anyone making over $1,000. There is also such a thing as paying quarterly estimated tax payments. Don’t forget the home office deduction. You can deduct the part of your home being used for business. Look on Schedule C, 1040). Up to one-fifth of your living space should qualify for office space. Deduct one-fifth of utility and rent fees on your taxes.
8. Be aware of deductions that can help lower your taxable income. This can include things like moving expenses, the cost of tuition, or office supplies etc. Also be aware that purchasing health insurance on the marketplace may allow for a premium tax credit. The credit may also be bigger if your income was lower than expected.
9. Changes in family size, a new job, or marital status should reflect as changes in withholding from your paycheck if working for an employer. Try to keep the balance between too much and too little being withheld.
10. Consider contributing to a health savings account if your plan is a high-deductible one. Medical expense contributions can roll over indefinitely while growing tax-free. This is similar to what you would expect of a retirement account.
11. Going on a vacation? Combine it with a business trip. This helps reduce the cost of your vacation through a deduction of the percent unreimbursed that’s spent on business.
12. Charitable deductions pulled from a payroll deduction, and cash and clothes donations can add up, and are often overlooked by taxpayers. As mentioned earlier, keep your receipts.
Plan the year as it progresses for how you’ll likely handle your taxes for the following year. It’s your money, handle it well.
About Darrin Mish
Darrin is a tax attorney who has taught dozens of attorneys, CPAs and Enrolled Agents how to help their clients with tax problems. Grab one of his bestselling tax help books by searching "Darrin T. Mish" on Amazon.com. If you have an IRS problem of your own, he invites you to visit his site at https://getirshelp.com/.
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