How to Save Money On Taxes
If you’re like most people, you’ve probably wondered, “How can I get more money on my tax return?” Yes, of course you want to save money on taxes, but do you know how to actually do it? Not many people do...at least not to the extent that is possible. Knowing how to save money on taxes just takes a little education, and then you’ll be on your way to getting a bigger return come tax season.
Start with the following eight methods that financially prudent people use to pay less and get more.
1. Change Your W-4 Withholding
The first, perhaps most simple, way to save money on your taxes is to adjust your W-4 withholding. This is especially true this year due to the sweeping changes in the new tax law.
These changes include:
The IRS encourages everyone to use their Withholding Calculator to perform a quick “paycheck checkup.”
2. See if You Qualify for Credits
There are a couple of different types of tax credits (a dollar-for-dollar reduction in your actual tax bill) that you may be eligible to receive on your tax return.
3. Save Your Money Tax-Free
Saving your money in a qualified account has two advantages. First, it lowers your taxable income. Second, the IRS doesn’t tax what you directly divert from your paycheck. Savings accounts that qualify for these benefits include:
529 Plan (College Savings)
4. Track Your Medical Expenses
Certain medical and dental expenses are tax deductible if you itemize. However, you may only deduct the amount of your total medical expenses that exceed 7.5% of your adjusted gross income. Deductible expenses may include (but aren’t limited to) payments for:
Doctors, dentists, chiropractors, psychiatrists, and non-traditional medical practitioners
In-house hospital care or residential nursing home care
Acupuncture or inpatient treatments for a smoking-cessation program
Participation in a weight-loss program for a specific disease, including obesity
Prescription drugs or insulin
Admission and transportation to a medical conference relating to a chronic disease
False teeth, eyeglasses or contact lenses, hearing aids, wheelchairs, and a guide dog or other service animal
Transportation to receive essential medical care
Insurance premiums paid for policies that cover medical care or for a qualified long-term care insurance policy
5. Give Tax-Deductible Gifts
Charitable contributions aren’t just good for the recipient, but for your taxes as well. The items that can be deducted if you donate to a qualified organization, and have a record of the contribution, are the following:
Cash, check, or other monetary gift
Expenses paid for a student living with you, sponsored by a qualified organization
Out-of-pocket expenses (including mileage or gas) when you serve as a volunteer for a qualified organization
However, there are some exclusions. They include tuition, medical expenses, gifts to your spouse or a political organization, gifts that are not more than the annual exclusion for the calendar year, and if you are making a gift or leaving your estate to your heirs. Under these circumstances, you cannot deduct the value on your tax return.
6. Deduct Losses on Worthless Investments
If you have any bad stock picks or worthless securities that are weighing down your portfolio, you can deduct your losses on their sales. This can offset your taxable capital gains, including from mutual funds, as well as offset some of your ordinary income.
7. Complete Purchases by December 31st
If you have any upcoming, tax-deductible expenses coming up within the next year, it will do you some good to make those purchases before the end of the year. For example, pay your January mortgage payment on December 29th. This gives you an extra month’s worth of mortgage interest to deduct this year. The same goes for medical expenses.
8. Learn the Answer to the Question, “How Much Should I Pay in Taxes?”
Knowing how much you should be paying in taxes is important so you don’t inadvertently under- or over-pay. Not getting your taxes filed completely and correctly can cause you serious consequences, and the risk is never worth it.
The problem is, reading the IRS code can be complicated and time-consuming. So instead, learn all you can about how to save money on taxes (and how much you should pay in taxes) with Quest Education and get more money on your tax return!
Did you know?:
Since 2001, there have been more than 4,500 changes to the tax code
Many workers who don't owe taxes neglect to file returns, not realizing that there are a number of tax credits that offer refunds.
The difference between taxable vs. tax-deferred investment growth can be substantial, but it can also be difficult to quantify without a calculator.
The mathematical reality is tax deferral will help you achieve your retirement goals more quickly, but there is a price to pay in terms of government regulation and sometimes higher fees associated with tax-deferred investing.
One of the great responsibilities that I have is to manage my assets wisely, so that they create value.
-Alice Walton, daughter of Wal-Mart founder Sam Walton