by Susan Paige
It’s the most wonderful time of the year. No, not Christmas — tax season!
The recurring tax deadline sends many people into a panic come mid-April. All year long, you’ve been putting this off. But now, the IRS has come to collect its dues. All the while, you’re wondering how to lower tax payments without having to spend much time filing your report.
If you’ve always wanted to know how to lower your taxes, but have never had a concrete plan for doing so, then you’re in the right place. In this article, we’ll provide you with seven pointers to keep in mind as you prepare to do your taxes in April. Using these tips will ensure that you complete your taxes on time, but also in the most efficient manner possible, and reduce your tax liability as much as possible.
1. Software Makes Everything Easier
First and foremost, realize that filing your own taxes can be complicated. There’s no reason to make it any harder for yourself than necessary. That, however, is exactly what most people do every tax season.
How do they make things harder on themselves? By not leveraging the software available to them!
Gone are the days when filing a tax return meant printing out a few different forms from the IRS, hand-calculating your liabilities, summing them up in a different form, and mailing a check in. That takes far too long. These days, the right software can do all of the above in much less time, without you ever having to leave your home.
Take QuickBooks Enterprise 2019, for instance. Though it may be overkill for those who don’t own businesses, this tool has enabled thousands of accounting teams all over the world to shorten their tax preparation time to only a few hours! There’s no reason why a similar tool, albeit scaled down a bit, can’t do the exact same for you.
2. Itemize Your Deductions
Whenever you file your taxes, you will have an important decision to make. We’re referring to the question of whether to use itemized deductions or simply claim the standard deduction.
The standard deduction is a set limit that you can take off your tax liability. It’s just a clean-cut right off the top of your gross income. The amount you can claim varies depending on whether you file as a single person, a married couple, or a head of household.
If you choose to itemize your deductions, however, it’s a whole different ballgame. When you itemize deductions, you have to list all of the various deductible expenses you had over the course of the year. This includes things like medical expenses, educational expenses, and charitable contributions.
If you’re confident that the total of your itemized deductions exceeds the standard deduction, and you have the receipts to prove it should you ever get audited, then go ahead and itemize. If not, then itemizing could be a huge waste of time.
Your best bet is to keep track of your deductible expenses over the course of the year so that when tax season comes around you already know which choice to make. Keeping track of all your receipts and expenses throughout the year will also help you make sure you’re not running around like a chicken with its head cut off at tax time.
3. Research Tax Credits
The next step in the process is to research and claim tax credits. Unlike deductions, tax credits go directly towards the amount that you owe. So if you deduct $1000, that means that the income you are liable to be taxed on reduces by $1000. Depending on your tax bracket, this could be $200+ for you in savings.
A $1000 tax credit on the other hand, is $1000 straight off the top of your taxes. So if you were gonna owe $2500 in taxes for the year, with a $1000 credit you now only owe $1500.
The power of tax credits is obvious. Take a look at some common ones to see which ones you may qualify for, and then take advantage!
4. Claim All Your Exemptions
Make sure that you claim all of your exemptions as you file your taxes. You already get an exemption just for being single, in the economy, and holding a job. If you have any dependents or a spouse, claim them all too.
5. Opt for Direct Deposit
This is only relevant to those who don’t owe taxes this year, but it’s still useful information.
Gone are the days when you had to wait weeks or months for a refund check to arrive if you were eligible for one. Instead, you can now have all of your funds wired to you through direct deposit. Technology is a beautiful thing.
6. Skip the Rapid Refund
The rapid refund concept is one that’s often peddled by tax preparers. They will give you an instantaneous refund of what you’re eligible for. However, what they don’t tell you is that it’s essentially a short-term loan that they charge a set amount of interest for (e.g. $50). So in other words, by opting for a rapid refund, you’re losing out on money that you would have otherwise gotten.
Unless there are extenuating circumstances that require you to have the money ASAP, skip the rapid refund if possible.
7. Work with a Tax Professional
Last but not least, consider working with a tax professional. No one will be better at lowering your taxes than someone who does it for a living! Thus, the return on your investment could be more than worth it in the long run.
How to Lower Tax Payments, Made Simple
With this helpful guide, you should be well on your way to learning how to lower tax payments this April. Don’t pay the IRS any more than you have to. Enjoy your hard-earned dollars instead of sending them off to Uncle Sam.
For more lifestyle advice, be sure to check out the rest of the articles on the website!