In an economy where credit conditions have shown minor incidences of improvement, it is imperative to save as much money as possible to fund the various necessities like education and retirement. Taxes generally end up taking a big chunk out of an average person's annual income and statistics show that as many as 2.2 million American taxpayers end up overpaying the IRS an average of $438.
Most Americans are unaware of important tax breaks and thus end up failing to take advantage of them. In a large number of cases, people tend to claim standard deductions rather than itemizing them. There are a number of ways through which you can cut down your taxes and save some money in the process.
Keep your documents organized - Many taxpayers fail to take advantage of tax deductions because they cannot back up their write-off items with proper documentation. Your best option is to keep every receipt and statement organized properly so that you can produce them when you file your taxes. The most important things to keep on file would be estate tax bills, mortgage interest statements, brokerage statements, documents showing investment losses, receipts against charitable donations and documents pertaining to business expenditures which have not been reimbursed.
Itemize your deductible expenses - This year saw a number of changes being implemented as far as tax adjustments and IRS ground rules are concerned. Joint filers can claim a maximum deduction of $11,900 while for singular filers the limit is set at $5,950. Since you will be itemizing your tax file, it's a pretty good idea to include such documents pertaining to IRA contribution and brokerage fees, cost of seeking tax advice and preparing returns as well as the receipts for expenses incurred in the process of looking for a job.
Tweak your expenses and payment schedule - There are a number you advantages to be gained out of modifying your payment schedule on different accounts, especially like mortgage bills. Try and make your January mortgage payment as early as the 31st of December so that you can have the interest deducted from your taxes in that year instead of next year. The same concept applies in case you are looking to make energy efficient upgrades to your home which also attracts tax deductions. The cap is set at 10 percent of the upgrade cost with a cap of $500.
Increase your 401(k) and HSA contribution - This one single step will not only save you from paying higher income tax but will also add to your retirement funds. Its quite simple actually. When you make contributions to your 401(k) fund, you are basically putting in pretax dollars while you are in effect reducing your taxable income as well. The same principal applies for IRAs as well as HSAs where you will be putting in pretax dollars and withdrawing them later to meet qualified expenses or when you completely retire. Even contributing towards an FSA will also be just as effective.
Simply put, you can save more money on taxes if you play your cards right and fund tax advantage savings vehicles. Keep all your receipts and paperwork organized and instead of claiming standard deductions, always try and itemize your filing.