Five Ways to Minimize Your Tax Costs

As another year begins, you find yourself struggling with your tax reports. You may feel motivated to make it easier for yourself next year when you’ll take all the steps necessary to decrease your tax bills.

You have plenty of time to do proper research and get informed according to the particulars of your business and family life. Today, we’ll provide you with some handy ideas to put you on the road towards a lower tax return amount next time around.

Get Organized

Our first tip doesn’t relate to saving money per se but avoiding paying more than you have to because you lost some relevant receipts.

The organization is a strategy for you to develop and hone through the year, not only during the tax season. Start by designating a place for all documents and receipts you’ll need for taxes.

Be sure to also save proof of medical expenses, child care, financial transactions, charitable donations, and receipts of deductible items purchases.

Add forms you got from your bank and income reports from your job. Make a system early on, and it will help you save time later as you won’t be digging through your home looking for documents.

Finally, keep the previous few tax forms in case the IRS has questions.

Timely Filing and Payment

By filing your return and paying taxes on time, you avoid the risk of paying interest and penalties on top of the price. If you notice you might miss a deadline, contact the Inland Revenue service – there may be support available.

Ensure timely payments by paying using online banking. Alternatively, if you go for a check, send it a week before the deadline at the latest, as it may not clear so quickly.

Plus, if you run a business, paying before the end of the year may grant you a discount in the first year.

Being late on your payment is sometimes unavoidable, but do whatever you can to avoid it. Penalties add up in no time.

Claim All Possible Deductions

You won’t get taxed on all the money you earn or receive during the year if you’re smart about it. You get to reduce taxable income via deductions.

One option entails taking standard deductions, which is the best course of action for most people. There’s also the option of ‘itemized deduction‘, which has you summing individual deductions available to you.

A wide range of deductions is available, so get informed. If you own a home or business, if you’re a student, if you had any medical expenses this year, and many other situations grant you this decrease.

Donate to Charities

Donating money, company stocks, or goods to charities is a win-win. You get the karma points from supplying charities with much-needed support, as well as a tax deduction.

There are some rules for this tax break, though. Choose a non-profit which qualifies for charitable status according to the Internal Revenue Code. In general, all organizations qualify except for political ones, business leagues, fraternities, and social clubs. 

The IRS website, of course, offers the entire list of communities they cover. To make the most of it, always read the fine print on the charity’s website, too.

When it comes to cash and property contributions worth over $250, you’ll need a written acknowledgment of the donation.

Spend Money Flexibly

At times, you have to spend money to save money (on your tax bill). If you have some cash nested away that you plan on spending, you get to chip away from the tax bill.

Flexible spending plans are your best friend here. These pre-tax plans allow that certain expenses get paid with tax dollars.          

Such costs include health insurance and dependent care. Your employer will deduct these amounts from your paycheck and release the fund once such expenses take place.

As a bonus, your gross income will be less due to the flexible spending account, which will reduce your taxable income.

Remember that you need to use the pre-tax funds according to the rules. Most importantly, you need to take advantage of these funds, or you’ll lose them.

The Bottom Line

Finally, one of the best ways to save money, in the long run, is through hiring a professional to prepare your return. 

Taxes are complicated, and these services may cost hundreds of dollars, though. So, make sure that you get a pro that can save you more than they require, which means that you shouldn’t hire the first attorney you encounter. 

The professionals from a tax law agency find this critical for a productive tax year. As they say, individuals should be aware of tax implications based on their situations. Having an expert in your corner can make a massive difference.