Although tax bills often feel like a burden, there are many avenues for reducing your overall taxable income. Cutting your tax bill means more money for you as a refund, or less going to the government. The next time your taxes are due, don't put your filing in until you've employed at least a few of these trustworthy tax reducing tips.
Contributing to tax sheltered retirement accounts is a noble goal, but did you know it can also knock down your tax bill? By stashing money away into a traditional IRA or 401(K) account, you'll automatically reduce your taxable income. The Federal government allows all individuals to contribute up to $16,500 per year to a 401(K) plan, and $5000 for an IRA.
By going with a Roth IRA, you can even help plan for future tax reductions. With a Roth, your after tax dollars are put in, meaning there is no write-off for this type of plan. However, after retirement age, you're eligible to withdraw funds tax free. Contribution limits on Roth IRAs are the same as traditional IRAs: no more than $5000 per year.
The biggest tax reduction for many families comes from credits and write offs specific to jobs and children. If you have children, you can automatically qualify for a wide variety of credits intended to help pay for education and other expenses. Child care and health care costs have become a frequent way to reduce bills in recent years too. This doesn't just apply to young kids either. Since older children normally remain dependents up until their early twenties, you can wield tuition credits, student loan interest payments, and other deductions to your family's advantage.
Many write offs that factor in monetary losses or spending toward good causes are in places as well. Charitable contributions are a common way to reduce taxes. Every dollar or valuable item give to charity can be taken off your tax bill. Always make sure to save receipts as proof, in case your filing is audited by the IRS.
If you've lost money the past year on the stock market or by gambling, you can make the sting feel a little less harsh. The government allows fairly generous write offs on financial losses experienced on investments. If you're formally invested using a professional broker or mutual fund company, then they will usually send a form dictating losses for easy documentation.
Job related expenses can help you save on taxes too. Each year, you can write off expenses related to travel, supplies, or other costs not reimbursed by your company. Ways to itemize business losses or expenditures are even more diverse for freelancers and small business owners. If recurring expenses of this type are constantly on the table in your career, then make sure you keep track of receipts and electronic records to report at tax time.
Maximizing savings from taxes is a vital necessity to keep more of the money you deserve. There's nothing wrong with believing in paying your fair share, but you can pay exactly that and not a cent more by taking a thorough look at all legitimate write offs and deductions.