Before you start doing your tax return, take a moment to make a plan. There are many ways to save money on your taxes, but you have to know about them before you start the paperwork otherwise you will miss out. Some savings have to be thought out and done in advance as well.
Although we can’t avoid having to pay taxes, we can make sure that we don’t pay more than we should have to. Of course, one of the best ways to save some quick money is to do your taxes yourself. Whether you have a 1099-MISC Form or an EZ1040 you can most likely do your own taxes for free and avoid paying an accountant.
In this article, we will go over what ways you may be able to save some money on your next tax return.
3 Best Ways To Save On Your Tax Bill
1. Max Out Retirement Accounts
You can end up getting a double whammy when you take this advice to max out the deposits to your retirement accounts. The first benefit is that you will pay less in taxes for the amount that you put in. For instance, you can max out your contributions of up to $20,500 and that money won’t count as income on your next tax return.
Those savings amount to roughly $5,000 to $6,000 off of what you would owe for this year. The second benefit is that if you max that out every year, the compound interest will really add up and you can enjoy retirement in style with the extra money you socked away early in your career.
Even if you don’t have a retirement account from work, you can contribute to an individual retirement account from the IRS and contribute up to $6,000 and pay fewer taxes on that income.
2. Make A Health Savings Account (HSA)
You may have a job that offers an exceptional healthcare plan so you think you’re covered. However, what happens if you are so sick that you can’t work? Your savings will end up having to pay for your medical and household bills.
This is a good reason to set up an HSA that allows you to put away $3,600 per year as a deductible on your taxes. Then, if you do get sick you have your savings in that account which saved you money on your taxes and even paid interest. If you do need to use the money for medical expenses then you aren’t taxed when you withdraw the money either.
3. Look For Tax Credits
A tax credit is much better than a deductible. You actually don’t pay the amount of the credit on your taxes so the savings can be considerable. You have some options for credits if you have children which gives you $6,935 for three or more kids. The Earned Income Tax Credit will give you a credit of $543 even if you don’t have any children.
The point of the Earned Income Tax Credit (EITC) was implemented to offset the payroll taxes that we pay for Social Security and Medicare. There are cases in which you may not qualify, but it is the tax credit that is most widely used.
As long as you are not being claimed as a dependent, you’re not making more than $10,000 per year in investment income, or that you don’t have a social security number, then in most cases you will be able to take advantage of this credit.
If you are paying a babysitter or daycare for childcare so you can go to work then there is also a Child and Dependent Care Credit. Applying for this credit can reduce your taxes by thousands which are meant to help offset the costs of childcare so you can work and support your family financially.
While we all love to complain about taxes, there are so many ways to reduce how much we pay that there really isn’t much to complain about. Use the guide above and you can see some serious tax reductions. If you’re unsure, then seek out a good accountant and they will help you save loads of money.
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