Taxes often represent a complex yearly project that many people just want to finish and forget. Unfortunately, this strategy might lead to overpayment of taxes. Several deductions exist to help individuals and families with saving money, but finding those deductions does take some research. Each year it’s a good idea to keep abreast of the major changes to the tax code, and to remain aware of popular deductions that help to reduce a beefy tax bill.
The following projects may help to reduce the tax bill at the end of the year:
1. Consider mid-year changes.
Events such as marriage or having a child represent potential deductions and may also decrease the amount of money taken out of each paycheck. Instead of looking at these events at the end of the year and getting a bigger refund, change withholding amounts on the W4 when major events occur. Getting a huge refund at the end of the year just means a taxpayer has given the government an interest-free loan for several months. Keep that money all year long instead of loaning it to the government.
2. Track employment expenses.
Many individuals who aren’t self-employed, or who don’t run their own business, are under the impression that employment-related deductions aren’t available. This is untrue as many workers can take off things like yearly mileage costs for a business trip or work-related projects. For heavy drivers, this mileage deduction may add up to a nice sum by the end of the year.
3. Invest in a retirement fund.
Deductions related to retirement funds are available to all workers, and it’s extremely beneficial to consider investing in an IRA (individual retirement account) as this investment may reduce a total tax bill by hundreds of dollars. An IRA is a terrific option for retirement investment for all workers at any stage of life. Beginning regular contributions to an IRA at a young age is vital for retirement planning and is one of the best ways to lower a tax bill.
Almost everyone is eligible for some deductions, and it’s important to consider every possible avenue for paying less on a yearly tax bill. Take the initiative early to make changes to withholding, and to make plans regarding next year’s tax submission. Saving money now on taxes offers greater financial benefit than sending too much money to the government each year only to get a refund.