Learn how to save money on taxes and snag a better refund.
The only certain things in life may be death and taxes, but if you know how to save money on taxes, you could score an impressive refund. Keep the following tips in mind as you strive to keep your tax burden to a minimum.
1. Write Off Student Loan and Mortgage Interest
Interest deductions offer one of the quickest paths to tax savings, and yet, far too many people fail to take advantage of this easy write-off. If you allocated money toward student loan interest last year, you could deduct up to $2,500 from your taxes, assuming the loans come from a qualified source. If you paid at least $600 toward interest, your lender should send you Form 1098-E.
Writing off mortgage debt is similar in many respects to writing off student loan debt. Your lender will send you Form 1098, which shows how much you paid toward mortgage interest last year. Compare itemized deductions — including mortgage interest payments — with the standard deduction, as the itemized approach doesn’t always garner added savings.
2. Don’t Forget Charitable Efforts
You’re passionate about giving back, and Uncle Sam is eager to reward your efforts. Keep track of all charitable giving (including clothing and other donations to Goodwill, the Salvation Army and the Easter Seals) and write it off your taxes. Keep thorough documentation for donations exceeding $250. Smaller donations have also come under increased scrutiny as of late, so keep all receipts, and maintain records regarding the donated items and their value.
3. Think Carefully About Filing Status
If you’re married, your best solution for filing will largely depend not only on your combined income as a couple, but also the difference in income between you and your spouse. While many couples benefit from filing jointly, there are select situations in which it is preferable to file alone. Those who file separately enjoy a lower adjusted gross income. Furthermore, spouses who travel extensively for work are better able to reduce taxable income when they file separately. However, in doing so, spouses lose joint tax filing credits and other potential benefits.
4. Contribute to Your Retirement Account
Saving money for retirement is always wise, and it’s never too early to start. Not only will this pay dividends down the road, but you could also save quite a bit on your taxes or qualify for a significant refund. The IRS gives you until tax filing day to deduct money paid towards retirement, so even if you procrastinate, you can still save. Depending on your household income, you may also qualify for the saver’s credit, which allows you to deduct even more money if you contribute to your IRA, 401(k) or other retirement accounts.
5. Utilize the Earned Income Tax Credit, If Possible
The Earned Income Tax Credit is the biggest source of savings for taxpayers, but many eligible Americans fail to claim this valuable credit. The guidelines are easier to meet than most people suspect; even some single taxpayers with no children can qualify for the EITC. Those who take advantage of the EITC often wipe out their tax burden or even receive a refund as a result.
Tax season is a pain, but if you get started early and take advantage of various write-offs and tax credit programs, you could significantly reduce your tax burden or even score a refund. If you struggle to make sense of these programs, utilize tax software or work with a trusted professional.
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