Again it is that time of the year, when you need to calculate your tax payments. So, without wasting any more time, begin your tax calculation. Here are 10 tips to save on tax, so that you can use the money elsewhere.
1. Donate dollars or stuff to a charity certified by IRS
Researches show that most people donate a decent amount to a charitable organization every year. Those of you don't, think about donating to a charity, which will help you save on your tax payments. However, while doing so, make sure you opt for itemized deduction. And, importantly, it should be a qualified charity. You should also . If you want to donate clothes or other stuff, you'll be able to deduct the fair market value. However, the goods need to be in good condition.
2. Organize paperwork beforehand to avoid last minute error
Tax calculation requires a lot of paperwork. So, make sure you organize your documents beforehand. It will help you whether you do it yourself or take help of a financial advisor.
Follow these steps to organize:
- Take a print out of a checklist of tax documents you will require
- Collect receipts and other information which you've piled up over the year
- Take into account the information you've received through mail
- Group similar types of documents together
- Call your broker to know the exact price you've paid for stocks or funds
- Take into account your income from rental properties, if any
3. Make sure you claim home office tax deduction if you qualify
You can write off expenses which you incur for conducting your home based business. To do so, you need to . For example, a person paying rent of $1000 per month for a two-bedroom apartment and using one bedroom for home office, can save $1000 in taxes, in a year.
4. Opt for installing energy equipment in house
Homeowners, who have , . You can of what you, as a homeowner, spend on qualifying equipment. It includes solar hot water heaters, solar electric systems, wind turbines, geothermal heat pumps, etc. You can even include labor cost for installing such equipment. Moreover, there's even no cap on how much you can claim as tax credit.
5. Claim dependency exemption if you're blessed with a child
If a child is born, your joy will double if you know that you can claim dependency exemption. You can claim up to $3950 off from your taxable income. Along with that, you can , too. You'll get the same benefit if you've adopted a child in this financial year.
6. Deposit to your retirement savings account
One of the best ways to reduce your tax is to lower your taxable income. If you have , you can contribute up to $17,500 to it. And, if you're 50 years or more, then you can contribute up to $23,000 to your 401(k) account. The .
7. Opt for a health tax break
If your employer is offering a medical reimbursement account, which is called a , you can to an account which you can use later to pay medical bills. By doing so, you can avoid your Social Security tax along with your income and can save a maximum of 35% or more compared with spending your after-tax money. You can contribute a maximum of $2,500 to your health care flex plan.
8. Opt for the saver's credit if you qualify
You can claim saver's credit in addition to the . You'll be eligible for this tax credit if your income is less than 30,000 and you're filing as a single person. Likewise, the amount is $60,000 for couples and $45,000 if you're the head of household. You can claim tax credit worth of 10-50% of the contribution amount up to the limit of $4,000 for couples and $2,000 for individuals.
9. Claim deduction of your job-hunting cost
If you're searching for a job, make sure you keep track of your job-hunting cost. However, for tax benefit, you need to look for a job in the same line of your work. Your first job won't qualify this criterion. You can such as, food cost along with lodging and transportation, if you have to stay out of station overnight for the purpose. However, you can deduct these expenses only if they exceed 2% of your adjusted gross income.
10. Check your moving cost
If you're moving at least 50 miles from your present home, then you're eligible to claim . You are eligible even if it's your first job and it is at least 50 miles away from your home. For example, if you're driving your own car, then you can deduct about 23.5 cents per mile along with tolls and parking cost. You can claim this deduction even if you do not go for itemized deduction.
It is advisable that you use the money, which you have saved, for some useful purpose. You can deposit the money in your rainy day savings account or use it to repay your existing debt. Whatever you do, try to use the amount to improve your financial condition. It is better to not use the money for shopping or for partying. Another piece of advice, such that you can save more next year.