The IRS expects you to file your taxes annually without fail. This means that you are doing everything you can to make sure that you give accurate information to Uncle Sam not just as a measure to avoid hefty penalties and at the same time, a move to save yours from tax fraud. But, as you try to do everything right, are there things you are missing? Are you paying more in taxes than you should? Are you taking advantage of all the tax saving strategies known to few?
Because if you are not, it could mean that there are thousands of dollars you are paying or losing unknowingly. But, you are in luck because this article will give you essential tax help that will not only lower what you owe the taxman but also save your time and money when the tax period comes around. Keep reading to uncover the tricks you have been missing on all matters tax:
Make contributions to your retirement account
Whether you are planning to retire at 50 or 70, a retirement account cushions you financially. This means that you ought to save as much as possible to ensure that when that day comes, you can walk away into the sunset happily. The cherry on top of that sundae – the tax savings that come from contributing to your retirement account.
If you have been looking for a reason to put more money into your retirement account, let the lowered tax bill be your motivation. But that is not all, by putting money into your retirement account; all your contributions are compound-tax deferred.
All you have to do is to make sure that you are eligible to be in the company’s retirement plan and if you aren’t but your spouse is, you need to make sure that your traditional IRS contributions are fully-deductible, as long as your combined gross income is less than $186,000. Don’t forget to check your tax bracket as per the contributions you make.
While at it, do your best to max out your retirement contributions.
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Last-minute estimates for tax payments
If for any reason, you didn’t pay enough money to the IRS within the tax period, you may find that you have a huge tax bill at the end of the year, coupled with penalties and interests. However, regardless of the reason for the huge tax bill, you must make an estimate, and you also need to make sure that you pay 100 percent of your previous year’s tax bill/ liability or 90 percent of what you owe this year. Otherwise, you will owe an underpayment penalty, something you don’t want to deal with.
To be safe, you might want to get rid of your 4th quarter penalty, make your payment by the 15th of January.
Be careful, however, not to pay the government too much because it’s a lot harder asking for a refund from the government than it is to owe the government a little money.
Keep good records
Though this will not cut costs directly, the organization will save you big hassles during the tax period. Some of the records you should have at hand include the W-2s and 1099s as well as receipts. Printing out a checklist will get you started and also keeping a record of all your documents that come through the mail, including the mortgage interest statements will simplify filing of tax returns. Don’t forget to collect receipts and other financial documents that could have piled up from the beginning of the year.
You also need to know the price you paid for stocks or funds from what you sold.
You also need to report all your earned income, including the earnings from side hustles. Note that the IRS will send you a 1099 form every time you earn more than $600.
Fill the right tax forms
One of the worst bits about tax season is that most people get started early, but some of them end up filing their taxes using the wrong forms. To prevent this from happening to you, you should consider getting the right forms online or ask for them to be sent to you.
Itemizing deductions
Besides the standard deductions, you should itemize any other deductions especially if you are self-employed. Don’t overlook seemingly miscellaneous expenses including job hunting expenses and the medical expenses exceeding 7.5 percent of your adjusted gross income. The deductions will also include the home office tax deductions.
Naming dependents
If you have kids or any other dependents, name them and include their Taxpayer Identification Numbers/ Social Security Numbers. If you are divorced, then you should know that only one of you gets to file/ claim the kids as dependents; otherwise, you risk the IRS denying your personal tax exemption for every dependent under 17 years. Also, you don’t want the tax filing process to stall because both of you named the kids as dependents or because you forgot their social security number.
Hold on to your investments
You need to hold on to your investments for at least a year and one day before you sell the investment. This way, you are pushed to the long-term capital gains category, and you will be subjected to more favorable tax rates.
Finally, you need to file and then pay your taxes on time. If you need any income tax help, get a professional before the deadline and don’t forget to file your taxes electronically.
