As you can notice it is almost the deadline to file this year’s tax return and I am already looking towards next year’s return. This is the time of the year when you can be excited/nervous/anxious when it comes to filing your return because you can either be in for a big tax refund or a rude awakening when you see the negative, wondering how you are going to come up with an extra couple thousand dollars to cover your tax bill shortage. So, what happened? Well simply put, I did not pay enough taxes. Not like I was missing payments, but something did not quite add up based on my income, deductions, and taxes paid. To ensure that you get the most out of and not owe like I did, make sure you are taking advantage of these ways to lower your tax bill.
Increase Contributions to a Retirement Account
If you are participating to your work 401(k) account, great, and if you are not, now being the time to start. The contributions will come out of pre-tax income, so taxable income will be reduced, all handled online internally with your company. If you one that is already contributing, by gradually increasing each year you will continue to reduce your tax bill without any extra effort, other than getting used to a little less being deposited into your checking account, but with the long-term goal in mind of having sufficient funds in retirement, it will be worth it. For those that are not offered a company provided 401(k) account there is no need to worry, you can open a IRA account with any bank or brokerage firm, and provided your income falls below the limits, at which you will need to check, the contributions will be deductible.
Take Advantage of Homeowner Credits
If you through renting and in the market to purchase a home, now is a good time before interest rate spike even further, but the only trouble seems to be there is such high demand and less supply in the current housing market. If you are able to secure a new home purchase, there are a few deductions that you can take advantage of writing off, such as the mortgage interest and property taxes that you are paying into each month, not to mention any energy efficient updates that you make. Sure, it is expensive to own and maintain a home, but at least you can write off to receive a portion back to ease your tax bill a bit.
Keep Track of Charitable Donations
There is significant tax relief that can come just from getting rid of your unused our outgrown items around your house and giving to those that are less fortunate. Receipts will be needed in case of any audits completed, so make sure that whatever you box and bag up for your local donations, that you are able to account for them. Clothes, furniture, electronics can all be donated and inputted into your online tax return with assigned market values so you know the total amount of your donation. Just be sure to be honest and not look fishy by assigning huge values to items donated that you clearly know they are not worth.
Work from Home
Fortunately, I am able to work from home during my day job, and by doing so, you can write off your home office to get a portion of maintenance/utility expenses in return. For those that do have to go into the office each day, by generating a little side business you can write off any business expenses, but keep in mind that if you are pulling in significant extra income you will need to pay taxes on those, so just keep that in mind if you are not increasing your federal taxes on your regular day job paychecks to make up for the side business tax shortcoming. Sending if estimated tax payments throughout the year is another good way of making sure to offset all of your extra income so that you do not owe as much on next year’s return. Your side business income may look good coming in, until you realize you owe taxes on all of your newfound wealth.
Open a Health Savings Account
Depending on your health care deductible, you can open a flexible health savings account, that even most employers offer, that you can contribute pre-tax, that usually do not count towards your taxable income. These are nice so you do not have to worry about ponying up for surprise medical bills until you hit your deduction.