An unexpected tax bill can ruin anyone's day. To help avoid that unpleasant surprise, here are 12 easy steps many people can take to lower their tax bills. In many cases, you must itemize instead of taking the standard deduction to use these strategies, but the extra effort may be worth it. The W-4 is a form that you give to your employer and tells you how much tax you must withhold from each paycheck.
You can change your W-4 at any time. How it works. The IRS doesn't tax what you directly divert from your paycheck to a 401 (k) plan. These retirement accounts are usually sponsored by employers, although self-employed people can open their own 401 (k), s.
And if your employer matches part or all of your contribution, you'll also receive free money. In general, you can deduct qualified medical expenses that represent more than 7.5% of your adjusted gross income for that tax year. From a tax perspective, there's a big difference between doing something on December. If you know that an upcoming expense is going to be tax-deductible, think about whether you can afford it this year instead of next year.
Making your January mortgage payment in December, for example, could give you an additional month of mortgage interest to deduct this year. Similarly, if you know that you are close to the threshold for the deduction for medical expenses, moving the root canal up could make the pain more bearable if the cost also suddenly becomes deductible. Property and Casualty Insurance Services Offered Through NerdWallet Insurance Services, Inc. OK9203 Accident Licenses for 26% Property.
If you volunteer with a qualified charitable organization, don't forget that you can also deduct miles traveled (14 cents per mile) to perform a charitable service, according to Greene-Lewis. However, there are steps you can take to reduce or even eliminate taxes on profits from the sale of your home. You have until the tax filing deadline to fund your IRA from the previous fiscal year, giving you more time to take advantage of this strategy. Traditional contributions to the IRA can be deducted from an individual's tax return, reducing taxes owed in the tax year of the contribution.
The IRS says it will work with taxpayers who live outside affected areas but who had tax records in disaster areas. Some employers offer flexible spending plans that allow you to save money before taxes for expenses such as medical expenses. If you can't (or don't want to) make installment payments to the IRS, consider taking out a loan somewhere else to pay your taxes. If you should have made estimated payments, a large part of your bill could be the penalty for underpaying the estimated tax.
If you've donated clothes, food, old sports equipment, or household items, for example, those things can lower your tax bill if you went to a bona fide charity and received a receipt. If you actually owe the additional taxes and your total tax bill includes interest and penalties, request a reduction in penalties. In addition, you (and your spouse, if you file a joint return) must not have failed to file or pay your taxes or have had another installment agreement with the IRS in the past five years. Historically, the IRS has collected the highest total amount of taxes in California, New York and Texas; these states also had the highest total refunds issued.
And we'll look at whether IRS customer service, which was so bad during last year's tax filing season that only 10% of taxpayers contacted an IRS representative, will improve for this year's tax season. However, regardless of your income or net worth, it's financially prudent to take all available tax credits and deductions that you qualify for. The good news is that a popular investment strategy called tax loss collection can help you take advantage of a market crash to your advantage. .