3 Tips for Cutting Your Tax Bill

Post on: 28 Апрель, 2015 No Comment

3 Tips for Cutting Your Tax Bill

It’s tax time and for some Americans, that means ponying up a hefty chunk of change to the IRS. Thanks to some key changes, this year certain taxpayers could find themselves paying even more. If you’re looking to shave a few bucks off what you owe, you’ll need to plan your filing strategy carefully. Here are a few ways to trim your tax bill so you can hang on to more of your hard-earned cash.

Cut Your Taxable Income

While it’s too late to defer part of your income for 2013, you still have opportunities to reduce the amount of your earnings that’s subject to tax. One of the easiest ways to do so is to sock away part of your income in a tax-advantaged account, such as an IRA or Health Savings Account.

Technically, you have until April 15th to contribute the full amount to either type of account for the 2013 tax year. You can chip in up to $5,500 to an IRA ($6,500 if you’re over age 50). The max limit you can put in an HSA is $3,250 for individuals or $6,450 for families, plus an extra $1,000 if you’re over 55.

Claiming deductions for certain expenses is another smart way to lower your taxable income. Some of the things that are tax-deductible include unreimbursed medical expenses that exceed 10 percent of your adjusted gross income, home office expenses if you’re self-employed or work from home at least part-time, charitable donations of cash or property and any costs you incurred while performing volunteer work. This would include things like uniforms or travel expenses. Just make sure that you’ve maintained accurate records, such as receipts or mileage logs, for any deductions you plan to claim.

Homeowners who sold their home in 2013 can also take advantage of a special rule that allows them to exclude any gains from their taxable income. To qualify for this tax break, you must have lived in the home full-time for at least two out of the five years prior to the sale. For the 2013 tax year, single filers couple exclude up to $250,000 in gains while the limit increases to $500,000 for married couples who file jointly.

Balance Losses and Gains

Two of the most significant changes set to impact taxpayers in 2014 are the 3.8% surtax on net investment income and the new 39.6% tax bracket. The tax on net investment income will affect single filers with an AGI of $200,000 or more and married couples earning $250,000 or more. The top tax rate applies to single filers making more than $400,000 and married couples who file jointly earning more than $450,000.

If you have investment income, you may be able to use any losses to counterbalance the impact of your capital gains. As a general rule, short-term losses cancel out short-term gains while long-term losses are applied to long-term gains.

If you have any ordinary losses from the sale of stock or other securities, these can be deducted on your taxes. Even if you’re reporting only losses and no gains you can still deduct up to $3,000 from your income. If your net losses were more than $3,000 you can carry the loss over to the next tax year and apply them to any future gains.

Don’t Overlook Tax Credits

If you’re not taking advantage of every tax credit you’re entitled to, you could be seriously shortchanging yourself. A tax credit reduces the amount of tax you owe, dollar-for-dollar, making them even more valuable than deductions when you’re trying to cut your tax liability. Some credits are worth a few hundred dollars while others are worth several thousand.

Some of the different tax breaks that are available include credits for making energy efficient improvements to your home, a credit for taxpayers who pay dependent care expenses and credits for qualified education expenses. There’s also the Earned Income Credit, which is designed to benefit taxpayers in lower income brackets. The more credits you’re able to claim, the less you’ll have to cough up to Uncle Sam.

Even though the tax filing deadline is drawing near, there are still plenty of things you can do to slash your tax bill. The more proactive you are about looking for tax breaks, the better off you’ll be when April 15th rolls around.

Rebecca Lake Rebecca has been writing about the nuts and bolts of personal finance since 2009. Her work has appeared on a number of popular finance sites, including the Quickbooks/Intuit small business blog and Money Crashers. As a homeschooling mom of two, she’s always looking for ways to make the most of every dollar.


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