When tax season rolls around, it’s easy to feel like doing the bare minimum. After all, taking advantage of all your deductions can be a complex and time-consuming process.
But you can be savvy and thorough in your tax filing—without the overwhelm. It just requires a little knowledge of the basics. Here are some tax strategies to maximize your return.
Understanding Tax Basics
Whether you’re a seasoned filer or tackling it for the first time, understanding some basic strategies can help you save money and maximize your refund.
Before diving into specific strategies, let’s clarify some key terms:
- Tax planning: Tax planning is the process of analyzing your financial situation to minimize your tax liability. Finding all the things you’ve spent money on for which the U.S. government has said you don’t have to pay taxes.
- Taxable income: This is the amount of your income subject to taxes after subtracting deductions and exemptions. The more legal deductions you can find, the smaller your taxable income becomes.
- Standard deduction: This is a fixed dollar amount you can deduct from your taxable income without itemizing your expenses. It’s generally simpler than listing individual deductions.
- Tax-deductible (adjective): “Tax-deductible” describes any expense that can be subtracted from your taxable income, potentially lowering your tax bill.
- Tax credits: These are dollar-for-dollar reductions in your tax liability, potentially resulting in a lower tax bill or even a refund. The IRS website is a valuable resource for researching different tax credits and their eligibility criteria.
10 Tax-Saving Strategies
While there is some strategy to tax planning, the actual tasks and concepts involved are pretty straightforward. Here are some easy boxes to check when you sit down to file your taxes:
1. Embrace the Standard Deduction
The standard deduction is often more beneficial than itemizing deductions, especially for individuals with simpler tax situations. In 2024, the standard deduction for single filers is around $13,850. This means if your total deductions are less than this amount, taking the standard deduction saves you time and simplifies your filing process.
2. Boost Your Retirement Savings
Contributing to a traditional IRA or employer-sponsored retirement plan like a 401(k) allows you to deduct your contributions from your taxable income. For example, if you contribute $5,000 to your IRA, your taxable income is reduced by $5,000, potentially lowering your tax bill.
3. Claim Eligible Medical Expenses
Did you know that medical and dental expenses exceeding 7.5% of your adjusted gross income are deductible? So, if your adjusted gross income (total income minus certain adjustments) is $40,000 and your medical expenses totaled $3,500, you can deduct $1,250 (exceeding 7.5% of your income). Remember to keep receipts for these expenses.
4. Support a Charitable Cause
Donating to qualified charities allows you to deduct your contributions from your taxable income. For instance, if you donate $200 to a registered charity and your marginal tax rate is 25%, you effectively reduce your tax liability by $50 (200*.25).
5. Claim Dependents (If Applicable)
Financially supporting qualifying dependents like children or elderly parents can entitle you to additional tax benefits. Depending on the dependent’s age and your income, this could significantly reduce your tax liability.
6. Take Advantage of Student Loan Interest Relief
Paying student loan interest can be a burden, but there’s a silver lining: You may be eligible to deduct a portion of the interest paid on your federal taxes. Check the IRS website for eligibility details and potential tax savings.
7. Explore Tax Credits
Low- and middle-income earners might qualify for valuable tax credits like the Earned Income Tax Credit (EITC). This refundable credit can significantly reduce your tax bill or even result in a refund. Research the IRS website to see if you qualify for this and other potential tax credits.
8. Understand Divorce and Taxes
If you’re recently divorced, understand the tax implications. Alimony payments made to your ex-spouse are generally tax-deductible for you, while they are considered taxable income for your ex-spouse. Consulting a tax professional can ensure you’re navigating these specific tax considerations correctly.
9. Go Electronic (E-Filing)
E-filing is not only faster and more secure than paper filing, but it also reduces the risk of errors and can expedite your refund. Most tax software platforms offer user-friendly e-filing options.
10. Stay Informed and Seek Help
The IRS website is a treasure trove of information on tax benefits and deductions. Additionally, consider consulting a tax professional for personalized advice tailored to your unique circumstances. Tax professionals can help you navigate the complexities of tax filing and ensure you’re taking advantage of all the benefits to which you’re entitled.
Remember, even small tax-saving strategies can make a big difference. By understanding these basic concepts and exploring the strategies that apply to you, you can approach tax season with confidence and maximize your refund.
Get Help with Your Tax Strategy
Looking for some support as you tackle tax season this year? Speak to one of the certified financial specialists at American Wealth Management. We’ll help you identify yhttps://financialhealth.com/contact/our deductibles and analyze your income and expenses so that you have all the pieces to file your taxes with confidence.
You can get a tax strategy free consultation here.
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Investment advice is offered through American Wealth Management (“AWM”), a SEC-registered investment adviser. Certain personnel of AWM may also be registered representatives of M.S. Howells & Co. (“MSH”), Member FINRA/SIPC, a registered broker-dealer, and therefore, may offer securities through MSH. AWM and MSH are not affiliated entities. M.S Howells does not provide tax or legal advice. Please consult your legal or tax advisor regarding your individual situation.