Tax season is rapidly approaching. Last minute tax tips are on everyone’s mind before April 15th. Some quick tax moves and saving on returns can make all the difference. See if you are eligible for these credits and deductions that will lower your tax bill.
10 ways to lower your tax bill before April 15th and keep your tax bill low year-round
- Charitable donations. In our last blog @DMCPA we discussed holiday tax saving tips and how you could maximize your charitable donations. Do a bit of research on the charities to whom you are donating. A charity like the Marine Corps Reserve Toys for Tots allows your donations to be deductible for the year of your donations. Charitable donations are a great way to give back to the community or the less fortunate and lower your tax bill in the process.
- Flex spending power. Many employers offer benefits allowing you, as an employee, to lower your tax bill by using money that they planned on spending anyway. To do this you must divert part of your salary to an alternative account that you use to pay medical bills. Examples of these employer benefits could be dependent care or medical expenses. This will allow you to avoid an income tax and a Social Security tax on that money, saving you up 20-35% or more. Note: The maximum contribution to a health savings account is $2,500.
- Earn tax-free income. Ready for an easy way to lower your tax bill? Start seeking out income and benefits that are not subject to income taxes. Some easy ways to do this include:
- Investing in bonds
- Depositing money in your child’s education tuition plan
- Opening a health savings account
- Take advantage of benefits offered by your employer
- Health Benefits
- Life Insurance
- Disability Insurance
- Dependent Care Assistance
- Educational Assistance
Earn smarter. Investing your money in these ways before paying taxes you will lower your tax bill, before you get billed for it.
- Pay childcare bills with pre-tax dollars. Take advantage of employer offered benefits like a dependent care assistance plan. Through a dependent care assistance plan you can use pre-tax dollars to pay for your child care. You can save 1/3 or more of the cost by avoiding income tax on these benefits. Note: You can avoid income tax on childcare bills up to $5,000.
- Home office deductions. Do you have a home office? If you are using part of your home for the purpose of a home office you may be eligible for the new home office deduction. What a way to lower your tax bill! This option allows you to take a deduction up to $1,500. This is based on $5 per square foot for up to 300 square feet, of the area of your home used for your home office.
- Make your home green. The government is now offering homeowners a tax credit for installing alternative energy equipment. These homeowners are able to claim up to thirty percent of what they spent on qualifying property. The qualifying property includes:
- Solar energy systems
- Geothermal heat pumps
- Wind turbines
- Labor costs
Note: There is no cap on this tax credit available through 2016.
- Track job-hunting expenses. Were you unemployed in the last year? If so, keep your receipts from your job hunting journey. As long as you were aiming at a new position in the same line of work, you may be able to deduct job-hunting costs. These expenses can be cost of food, transportation and lodging. Note: These costs are deductible if they exceed two percent of your adjusted gross income.
- Boost 401(k) retirement trips. You can lower your tax bill by contributing to a qualifying 401(k), and it will help build your financial security. Money contributed to this plan is not included in your taxable income. Note: You can contribute up to $17,500 to your 401(k), or $23,000 if you are 50 or older by the end of the year.
- Maximizing individual retirement account (IRA) contributions. IRA contributions lower your tax bill. If you contribute to an IRA you will also be able to claim the retirement saver’s credit for up to $1,000 for singles and $2,000 for couples. Note: You have until the date you file taxes to contribute to a traditional IRA for the previous tax year.
- Think ahead to next year. Plan ahead to lower your tax bill. By using the above tips you can put yourself in a great position for the upcoming year.
There is a lot that you can do between now and April 15th to lower your tax bill. Take these tips into the next year to start saving from the get-go.