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. To see how much you can owe, enter your most recent payment receipt information in the IRS withholding tax estimation tool. If you've paid poorly, it's probably too late to adjust your W-4 for this year, says Lisa Greene-Lewis, certified public accountant and editor of the TurboTax blog. If you can, you should make an estimated tax payment.
The tax reform eliminated many itemized deductions for most taxpayers, but there are still ways to save for the future and cut your current tax bill. And don't let potential tax consequences interfere with your long-term investment plans, says Naomi Ganoe, CFP and managing director and leader of private client services practices at tax consultancy firm CBIZ MHM. Careful tax planning could significantly reduce your tax burden to next to nothing, even if you have fairly high incomes. By requesting federal tax deductions and deductions on your tax return, you can change the amount of tax you owe.
Unlike some credits (such as the earned income credit and the additional child tax credit), the savings credit is not refundable if the credit exceeds the taxpayer's tax liability. If your hard work has paid off and you expect to receive a year-end bonus, this additional money could push you to another tax bracket and increase the amount of taxes you owe, according to Greene-Lewis. The home office deduction, for example, is calculated using a simplified or regular method to reduce taxable income if part of a home is used as dedicated office space. 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.
While there are many types of retirement savings accounts to choose from, below are two of the most common types that can help reduce taxable income in the fiscal year in which a contribution is made. If you actually owe the additional taxes and your total tax bill includes interest and penalties, request a reduction in penalties. You must show the IRS that you cannot pay the full amount when it is due and that you will pay the tax within three years under the installment agreement, and you agree to comply with tax laws while your agreement is in effect. However, regardless of your income or net worth, it's financially wise to take all available tax credits and deductions that you qualify for.
Both options offer the opportunity to reduce taxable income through pre-tax contributions and allow higher limits on contributions each year. Both HSAs and FSAs expect a reduction in tax bills during the years in which contributions are made.