Before you sit down to complete your tax return, it helps to know there are ways to reduce your tax bill without breaking any laws. The IRS offers a variety of tax credits and deductions and if you’re smart about claiming what you’re eligible for, you can legally pay less tax.
- Claim your tax credits
The IRS offers a number of different tax credits encompassing many things, from education expenses to buying energy-efficient products for your home. Tax credits offer a dollar-for-dollar reduction of your tax liability and you must use the correct filing status to qualify for many of them. The tax preparation process is a great time to consult with experienced tax attorneys from Fortress tax relief.
There are five different categories of credits: income and savings, home ownership and real estate; family; education and healthcare.
For example, you may qualify for a child tax credit or a refundable tax credit for undergraduate college education expenses. Find out which ones you’re eligible for on the IRS credits and deductions page.
- Take appropriate standard deductions
The IRS has an interactive tax assistant. It can help you to determine a general standard deduction you may be eligible for in a few minutes. You can use the figure calculated for your tax situation to determine whether to use the standard deduction or whether it is worth making an itemized list of all your expenses.
Many people will take standard deductions so they don’t have to provide proof of purchases. Itemized deductions often don’t add up to more than the standard deduction anyway.
If you’re self-employed, you’re eligible for many deductions, a few of which include business-related vehicle mileage, percentage of home internet changes used for business, website fees, advertising, business-related travel, office supplies and other expenses you incur to run your business. If you pay your own dental or health care insurance, you may be able to deduct a portion of your premiums.
Deductions made for business must meet certain requirements – they must be used for business purposes, they should be typical and necessary and they must be documented. If you want to deduct a business expense, save the receipt and keep a note about what you bought and why you bought it.
- Make itemized deductions
If you have made substantial payments for things like medical expenses or property taxes and if so, it could be worth making itemized deductions. When they are subtracted from your adjusted gross income, you will pay less tax.
If you hesitate to take certain deductions because you fear they will raise a red flag with the IRS, this could prevent you from claiming a deduction you are entitled to take and you will pay more tax than you should.
- Contribute to retirement funds
When you make contributions to an Individual Retirement Account (IRA or Roth IRA), you get tax benefits. Deducting these contributions from your taxable income reduces how much tax you owe. If you start contributing early, you reduce the tax you pay and help secure your retirement.
- Change your mindset
When you’re able to shift your mindset, embrace the process and educate yourself, you may find there are ways to legally reduce your taxes and avoid leaving money on the table.
You shouldn’t fear the IRS and practice avoidance but learn how to better document your business or correctly identify opportunities to save tax. It may come down to paying a tax advisor to identify these opportunities and this is likely to save you more in taxes than what you pay the advisor.