Finance

How to Save Money on Taxes: 4 Helpful Tips to Know – 2020 Guide

Are you hoping to save money on taxes, but aren’t quite sure where to begin?

There are many different tax deductions and tips that people miss out on that could save them thousands of dollars. And, the best part is, you don’t need to be an accountant or a tax wiz to figure out how to save money.

What do you need to do? Check out this guide to discover how to save money on your taxes.

1. Reduce Your Taxable Income

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One of the best ways to save money on taxes is to reduce your taxable income. The less money you earn the less money that can be taxed.

Of course, unless you’re independently wealthy, reducing your income for the sake of saving on your taxes won’t do you any favors. Luckily, you can reduce your taxable income while still making a decent living.

The best way to do this is to contribute more money to your retirement savings, whether it is an IRA or a 401(k). Any wages you defer to your IRA or 401(k) don’t count as taxable income. So, not only will you get a tax break now, but you’ll also be saving for your future – a win-win!

2. Fix Your W-4

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Your W-4 is the form you fill out for your employer each year. With this information, the government knows how much money to take out for each paycheck.

If you received a huge tax bill last year and want to reduce that amount this year, one of the best things to do is to raise your withholding. This way, you’ll owe less money when it’s time to file.

If you received a huge refund, you can do the opposite and reduce your withholding. This way, you can live on a bigger paycheck throughout the year.

3. Set Up a Healthy Savings Account

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Another great way to save money on your taxes is to set up a healthy savings account, also known as an HSA. In order to do this, you’ll need what’s known as a highly-deductible healthcare plan.

A healthy savings account can reduce the amount of income that’s eligible for taxation. It can also help you plan for future medical expenses.

If you’re single, you can contribute up to $3500 per year to your HSA. For couples and families, you can contribute up to $7000. Also if you’re over the age of 55, you can contribute an extra $1000.

4. Cash In On Tax Credits

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Collecting tax credits is another excellent way to save on taxes.

For example, if you’re a parent, you can deduct up to $2000 for each qualifying child. If you use a daycare service, you can qualify for a tax credit of up to $3000 per child.

Tax credits aren’t just available for those who have children. If you paid someone else to care for your parents while you worked, then you may also be eligible to claim the dependent care tax credit.

If you need help figuring out which tax credits you can claim, we suggest working with an accounting firm like www.wndecpa.com

How to Save Money on Taxes: Are You Ready to Save?

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Now that you know how to save money on taxes, it’s time to put these tips into action. These tips can help you save thousands of dollars each year, so don’t neglect them.

Be sure to check back in with our blog for more tax-related tips and tricks. Filing taxes used to be a thing for accountants and professional tax preparers. Thanks to computers and tax software, it is now easier to prepare and file taxes on your own. A benefit of filing on your own is that the cost of filing is usually less. Software such as turbo tax also allows you to prepare and file taxes all in the comfort of your own home.

If you have children, your savings will be even greater. As a parent of children 17 and under, you can receive a $1,000 credit. You can also save money if your children are attending college. You may have to look into what credits apply for undergrad students as most credits have limited lifespans and are at times extended or replaced with other credit based programs. Did you know that many charitable contributions to nonprofits are tax deductible? That’s right, helping others can help you save some money.

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Make sure that there is documented proof of your donations. If you are one of the many Americans that works from home; there are many tax breaks that you can take advantage of. Make sure that are careful to differentiate areas in your home that are used for business. It is strongly recommended that you have a section in your home with your business as its primary function. If you are going to use your home as a tax write off, keep track of all necessary documentation in case of an audit.

Have you made any recent improvements to your home? Well some improvements can end up saving you some money when you file your return. Energy saving improvements will earn you credit on your taxes. Take account of all the expenses involved with having a car: your monthly car payment, gas and maintenance charges, insurance, parking, and so forth. See if you can renegotiate any of your current costs or shop around for better deals.

For instance, if you’re paying $50 a month for parking at your apartment complex, can you park it outside the building and get a $50 discount from your landlord? (Obviously, you only want to do this if it’s relatively safe for your car to be parked on the street, as well as safe for you to enter your building from outside.) Then there’s insurance. Ask your insurer about any discounts for which you might be eligible: good driver discounts, lower rates for taking a defensive driving course, or even decreased premiums for having an alarm system or antitheft device. Also, by raising your insurance deductibles, you can save 10% to 25% off of your annual premiums.

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