Posted by Peter J. Marchiano, Jr., CPA

Top 10 Effective Tax Saving Tips You Should Know About

Top 10 Effective Tax Saving Tips You Should Know About

Money is a commodity and a necessity. People work hard for money because it serves as the most powerful exchange for anything we want to have. Money is limited and scarce, especially for people who don’t have much in life. Everybody is searching and creating ideas on how to make money stay in our pockets despite the high demand for it – for debt payments and for the daily needs and expense.

Taxes are constant and a liability that keeps on appearing in your financial reports. It is an income sucker if not managed and paid regularly. Yes, tax liability has been one of the financial burdens to all taxpayers. It lessens your take-home pay every payday, and some are allergic to it that they want to get rid of it.
Tax savings refers to the payment of a reduced tax amount. For instance, a particular type of investment income is taxed at a low rate or not at all, or because only a portion of the investment income is taxable. Definitely, it must be handled smartly and wisely. What we need to do is to reduce them and apply some tax-saving devices that certainly help you carry the lighter load. Tax planning is one of the basic strategies in helping you save money from your taxes. Below are some helpful tips.

  • Filing taxes early. According to IRS data, early filers have high possibilities for getting a larger refund. The earlier you file, the earlier you will receive your tax refund. The previous year, almost 75% of early taxpayers received a tax refund. The early filing also eliminates deadline stress. You have to gather necessary documents and file your taxes online. IRS is starting to accept the online filing of taxes or e-filed tax returns.
  • Do not spend so much to get your taxes done. IRS offers online tax preparations using a tax software, 4 of 5 taxpayers have been using it. Then, professional fees for tax preparer will less likely be spent and you can save hundreds of dollar since tax preparations are now offered via software. In some cases, you may be able to file your federal and state taxes absolutely free.
  • E-file your tax return. Electronic filing is the fastest way to get your federal tax refund. Then you will receive a confirmation number after the IRS has successfully received your tax return. This is a much better alternative than dropping your return in the mail and wondering when or if it will be received. If expecting for a federal tax refund, they will wait 21 days or less – that’s the benefit of taxpayers who will use e-file with direct deposit. Available tax software programs like TurboTax allows you to e-file your federal tax return for free.
  • Start saving for emergency funds. The tax refunds receive will continue to grow if you put them into savings or investments like cash deposits, retirement fund, or purchasing a tax time savings bond. Getting yourself ready for unexpected expenses that might come along is the most important saving tip you can do. If emergency cases will come you don’t need to borrow and increase your debt which will be more burdensome.
  • Contribute to tax-advantaged retirement plans or health saving account. Now is the perfect time to consider maximizing your contributions. Contributions to a retirement plan are deductible from your income taxes. You would be surprised how easy it is to get used to an increased salary deferral coming out of your paycheck when it’s building your nest egg and helping your tax situation. Health savings account (HSA) is another option for reducing taxable income. In HSA your contributions are made with pretax dollars so you reduce your federally taxable income; earnings are federal and potentially state-tax free, as are withdrawals used to pay for HSA-qualified medical expenses.
  • Make estimated tax payments. It is a method used to pay tax on income that is not subject to withholding such as income from self-employment, interest, dividends, rents or alimony. Generally, the self-employed or anyone who expects to owe $1,000 or more is expected to pay quarterly estimated tax payments. Paying your quarterly estimated tax provides the peace of mind that you won't be hit with an unexpectedly large tax bill.
  • Make contributions to qualified charitable institutions. Donations that are made to a qualified charitable organization are tax-deductible. When you donate, don’t forget to pick up a receipt for your tax records. Regardless of their amount, you have to keep a record of all contributions, in the form of a bank or credit card statement, or a receipt from the eligible organization.
  • Deduct eligible related expenses to lower your taxable income. Tax deductions – such as moving expenses for a job, the tuition and fees deduction, job-related travel expense, educational and training-related expenses – can all reduce your taxable income and save you money at tax time. You may have a bigger premium tax credit when you file your taxes if your taxable income is lower than expected.
  • Payment of your debt. When you receive your tax refunds use it for much-needed debt relief. Pay off your credit card and other outstanding debts. Try to pay off the smaller with high-interest rate balances first. It will free you up from debt-related stress and have peace of mind.
  • Get to know your tax law. It is the most important tax saving tip you can follow through. You must understand how the new tax bill will affect your businesses and your personal income. Take time to understand and ask for pieces of advice from tax experts on how to take advantage of your current situation without evading any law or violating them.

Remember, you worked hard for the money and a healthy financial lifestyle is what you deserve. Use your tax refund and start making smart financial decisions that will definitely benefit you and your family over a longer time.

Peter J. Marchiano, Jr., CPA
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