Everyone likes to save money on his or her taxes, especially if it increases the amount on the refund check. However, you do not want to find yourself lying on your tax return, even if it just a small, white lie, as a way to save money. Instead, you should try one of the following ways to legally save you money come tax time.
Consider Filing Separately
If you are married, you and your spouse do not have to file jointly. In some cases, you can actually save money if you choose to file separately. It does take more time and effort, but it may be worth it in the end. The reason for this is that the IRS calculates the eligibility for certain deductions based on the adjusted gross income. If you file jointly, your AGI goes up, reducing your eligibility for these deductions. However, you may end up no longer qualifying for certain credits due to not jointly filing. The best move is to calculate your taxes both ways and then choose the one that saves you the most money.
Use as Many Deductions as You Can — Legally
There are numerous deductions for which you may qualify, including business travel, job-hunting, volunteering, medical expenses, charitable donations, and more. For these to help you out, you do need to have itemized deductions that add up to more than the standard deduction. However, if you do have enough qualified deductions, it might be worth it to do an itemized deduction rather than the standard deduction to save some money.
Put Money Into Your IRA
Your IRA is an invaluable account to help you fund your golden years. It can also help you save money now. You have until tax day to open an IRA for the previous tax year. This allows you to claim the credit to increase your savings. The money you put into your IRA also reduces the amount of your taxable income. Therefore, try to always give the maximum contribution to help you save on your taxes while also putting more money towards retirement.
Every year, there are new credits out there that may be able to help you, if you qualify. You may know some of these, such as the earned income tax credit or premium tax credit, while others may be completely foreign. Knowing what credits are available, including those that could apply if you have made changes to your home that save energy or bought a hybrid car, could end up saving you money.
Liquidate Your Losses
If you have some stocks that have depreciated and you wish to use this as a tax deduction, then it is important that you have actually liquidated these stocks before the end of the year. This can help you to reduce your tax payments, especially if you have considerable gains in other stocks in your portfolio. It is better to sell losing tock with short-term capital gain to maximize on the tax benefits.
There are many other ways that you can legally save money on your taxes for a bigger refund or a lower tax bill. If you find yourself unable to pay your tax bill, you still have actions to take. It is to your benefit to go ahead and file and pay what you can; otherwise, you will find that you owe even more money due to interest and penalty fees. Find out more ways to help you pay your tax bill by downloading Fidelity Tax Relief’s Guide to Paying Taxes You Cannot Afford.