Income Tax Savings Tips
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Finding tax savings and reducing taxes can be time-consuming since existing tax laws change frequently. Keep up-to-date on the latest methods of tax reduction and the most effective tax planning tips. One of the most important steps a wage or salary earner can do is to monitor the ongoing tax withholding per paycheck. Whatever you enter on the W-4 now, you still won't know how it will impact your next tax return regarding a tax refund or taxes owed. For example, if you received a tax refund due to your latest tax return or are expecting a refund next year, you may decrease the amount of taxes withheld from your paycheck, so you get your refund money now via increased paychecks. The challenge is to know how to balance this. On eFile.com, we make it easy to determine optimal withholding with free tax tools and calculators.
Find ways to save on taxes through maximizing tax-free income, saving money in your daily life, and taking note of expenses you may be able to deduct or get a tax credit for.
How to Save on Taxes
There are various ways to keep your money during the year and when you file your taxes. Throughout the year, you should focus on adjusting your W-4 to keep your money during the year, contributing to deductible accounts, and selling any stocks that are weighing down your portfolio so you can write the loss off on your taxes.
By tax time, gather all your applicable tax forms and documents, estimate your Tax Return, and use online tax filing software to help you claim all the tax credits and deductions you may not know you qualify for. If your tax planning has gone well, you may have a well-balanced tax return and large yearly paychecks. Start your Return for free and get taxesfaction:
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15 Simple Tax-Saving Tips
- Submit an updated and accurate W-4 to your employer or employers.
- Contribute to traditional IRA, 401(k), 403(b), and other retirement accounts.
- Contribute to other tax-deductible accounts such as an HSA or FSA.
- Open and contribute to a 529 college savings plan.
- Review your investment portfolio for losses that may offset your taxable gains.
- Start your own business and write off deductible expenses.
- Purchase a qualifying electric or hybrid vehicle for a tax credit of up to $7,500.
- Make energy-efficient improvements to your home and claim a tax credit.
- Educate yourself, a spouse, or a dependent and claim an education tax credit.
- Donate to charity if you plan to itemize your deductions.
- Keep track of your medical and dental expenses for itemized deductions.
- Track your home mortgage insurance payments plus state and local taxes.
- Wrap up your tax planning by December 31 - some until April 15 of next year.
- Use eFile.com to claim tax credits and tax deductions that you qualify for.
- File your taxes on time in case you owe taxes.
Save money during the year by investing, saving, and maximizing nontaxable income. Review the sections below to learn how to save money during the year and how to get back overpaid taxes when you file your Return.
How to Save Money Every Day
There are various ways to save, including investing in certain deductible accounts and maximizing passive income. Here are ten simple tips to save money during the year:
- Get rid of some debt by paying off credit cards, student loans, and other accounts.
- Make goals to save money; set weekly or monthly savings goals.
- Set up automatic deposits into a high-yield savings account.
- Spend to save - invest in your property to operate more efficiently and thus help you save on monthly bills.
- Start a budget for weekly expenses (hobbies, going out, bills, etc.) - prioritize needs and wants.
- Consider investing in an electric vehicle; claim an EV tax credit and save on gas, as electricity is generally cheaper.
- Invest in your home to reduce energy wastage through energy-efficient windows and other upgrades.
- Pay off or prioritize debts with high interest.
- Generate passive income through investments.
- Understand your tax situation and calculate your next return.
See also: How do I save my money on everyday expenses?
Tax-Free Income
Tax-free income is compensation you receive which cannot be taxed by the IRS. Looking for a pay raise but not more taxes? Assistance in the form of money or services is nontaxable income. Here are several examples of expenses that can be paid or reimbursed by your employer without burdening you with any new income taxes, updated for the tax year:
Tax planning can help reduce your tax bill and earn you a bigger tax refund. Start your tax planning now so you are prepared once tax season arrives. Check out our list of tax planning tips and this helpful checklist that may help you increase your tax savings, optimize your tax deductions, reduce your tax burden, and ultimately save you money on taxes!
Tax Tip: Plan your tax savings during October, November, and December to prepare you for tax season.
Follow the tips below to save money on taxes; the sections are full of various tax deductions and credits, which can help you get back your money or keep it during the year.
Costs Associated with Working
- Deduct Your Work-Related Parking Expenses- Your employer can reimburse you up to $300 per month tax-free for parking expenses you paid during the tax year.
- Deduct Your Car Mileage for Business- You may be reimbursed for business use of your vehicle based on miles driven.
- Consider Your Carpool Income Tax Free- If you carpool with others to get to work, any payments your passengers give you are considered reimbursements of your expenses and may not have to be claimed as income.
- Deduct Your Work-Related Travel Expenses- If you go on work-related trips and keep your receipts, you can deduct the cost of travel expenses, baggage handling, lodging, meals, business phone calls, and even dry cleaning.
- Deduct Your Moving Expenses- You can only claim a deduction on your moving expenses if you are an active-duty military member and you moved to a new residence that is at least 50 miles closer to your new or current workplace than your old home.
- Deduct Home Office Expenses- If you work from a home office, you may be able to deduct expenses such as internet and cell phone service, furniture, insurance, and security.
- Claim the Earned Income Tax Credit- If you have a low income, you may qualify for the Earned Income Tax Credit.
- Claim Tax Breaks for Being in the Military- If you are in the military or armed forces, thank you for your service to our country. You may be able to take advantage of several tax breaks for military personnel.
- Claim the Saver's Tax Credit- You may get a tax credit for making qualified retirement saving plan contributions.
- Rent out your Building, Room, or Property Tax Free- According to the IRS, if you rent out your Residential or Vacation Property, it is tax free if it is rented for 14 days or less. Consider this to avoid paying taxes on renting for purposes like Airbnb, hosting business conferences, company parties, etc.
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Save Taxes on Home and Car Expenses
Save Taxes on Family Life
- Marriage and Taxes- If you got married during the tax year, it could reduce your taxes. Ensure you coordinate this with your spouse regarding W-4, income tax brackets, and filing status.
- Divorce, Separation, and Taxes- If you get divorced or separated, your new filing status affects your taxes. Learn about the latest updates on alimony payments and determine whether they are deductible.
- Claim the Child Tax Credit- If you have children or other dependents, you may qualify for a child tax credit. See if your child qualifies for the CTC.
- Claim the Adoption Tax Credit- If you adopt a child, you may qualify for the refundable Adoption Tax Credit.
- Claim Student Tax Credits- If you are a student or the parent of one, you may be able to claim different student tax credits on your tax return via the American Opportunity Credit or The Lifetime Learning Credit.
- Claim Teacher or Educator Tax Deductions- If you worked as a qualified educator during a given tax year, you may be eligible to claim various expenses related to your job.
- Enroll in a Class to Further Your Career- As a student, you may be eligible for the The Lifetime Learning Credit tax credit to offset the cost of your education. Even as a working adult, you may be able to claim a nonrefundable credit when you file your federal taxes, even if you take just one class, online or on campus.
- Claim and/or Deduct Student Expenses- Consider contributing to a college savings plan for your children or grandchildren. Additionally, find student-related tax deductions and tax credits to learn about.
- Deduct Medical Expenses- If you spent money on medical care and had a particularly tough year, you may be able to deduct any medical expenses exceeding 7.5% of your income. In order to claim this, you would have to itemize your deductions, which in many cases is not advantageous.
- Claim Tax Deductions for Family Business- If you employ your child under 18 years old in a family business, you may not have to withhold Social Security, Medicare, or unemployment taxes from their salary.
- Contribute to Different Savings Accounts- As noted in the nontaxable income section, contributions to different savings accounts are often not taxable. When you contribute money, you directly take away from your taxable income for the tax year. Consider putting money into your 401(k) - find the maximum contributions on that page. Other options include: Flexible Spending Account (FSA), Health Savings Account (HSA), Medical Savings Account (MSA), or Coverdell (ESA) for education.
Deduct Charity Donations
Turn your kindness into cash back! See how you can save money on charitable donations:
- Claim Tax Deductions for Charity Donations- If you donate money or goods to charities or religious organizations, you may be able to deduct the value of your donations. Be sure to get receipts for any donation worth over $250. During the Tax Year, an individual can give up to $17,000 to children or grandchildren without any gift tax (a couple could jointly give a gift of up to $34,000 tax-free), up from $16,000 in 2022. Any gift over that amount is subject to a gift tax, which the giver, not the recipient, incurs.
- Deduct Charitable Mileage Expenses- If you used your vehicle for a charitable organization, you may be reimbursed a certain amount per mile driven.
Save Tax Money on these Other Expenses
- Report Gambling Winnings and Claim Losses- Whether you gambled and won or lost, it affects your taxes. All gambling winnings (poker, slots, etc.) must be reported as taxable income. Any gambling losses may be claimed as deductions up to the amount of your winnings. Winnings and losses must be reported separately. Additionally, report any and all winnings and losses you may have accrued during the tax year, such as stocks.
- Capital Gains- You can create a personal residence trust that transfers ownership of your home to your children but allows use of the home for the life of the trust, usually 10-20 years. Creating the trust now allows your inheritors to gain your property at the currently depressed values while you still retain the property as your residence. The home’s estate tax value is locked in at the beginning of the trust, taking advantage of the currently depressed housing market. If you live longer than the trust, the home is no longer in your estate. Read more about Sales and Other Dispositions of Assets or Investment Income and Expenses in these IRS Publications, courtesy of eFile.com.
- Claim Deductions for Rental and Other Miscellaneous Income- Miscellaneous Tax Deductions have been eliminated after 2018. For the purpose of the previous year tax returns, if you rent a safety deposit box to store stocks, bonds, and other paperwork for investments producing taxable income, you may be able to deduct the rental cost.
- Deduct Now and Pay Later- Tax deductions apply to more than the cash or debit purchases you made in the current tax year. You can also take deductions for the tax year in which you charged goods or services with a bank-issued credit card, even though you may pay for those charges after that tax year. This can be useful to small business owners or self-employed service providers who can claim depreciation on business property purchased on credit.
- Save Money in Other Ways- Around the house, going out, saving on travel and school, school tax credits, and everyday saving expenses. Consider this page on money-saving during hard times if you face financial or personal struggles.
Put your tax planning into action and estimate your next Tax Return with the easy-to-use eFile Tax Estimator and Calculator. To maximize your Tax Refund, prepare and e-file your Taxes with eFile.com and TAXercise your paycheck!
How to save money on taxes: use the tips above to plan your next return. Filing taxes online is a simple way to maximize tax savings since online tax filing software claims the credits and deductions for you. Use eFile.com to file your taxes online and see if you qualify for free online tax filing.
Keep up to date with changed, extended, or canceled tax breaks.
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