You can minimize your tax liability through proper tax planning. Here are some top tips for saving taxes.
Reducing Income
This is the easiest way to lower your taxes. Adjusted Gross Income (AGI) is one of the key elements that help determine your tax. AGI is a key value for all your financial planning. It includes your income from every single source. For example, if you contribute money to your retirement account you automatically lower your adjusted gross income. And, therefore, reduce your tax liability.
Increase Your Tax Deductions
Taxable income is the amount you get after you have subtracted your deductions and exemptions from your AGI. Many people can take advantage of the standard deduction. Your standard deduction also depends on the number of dependents you have and whether you are married or not.
Others can take advantage of itemized deductions for things like state and local taxes, expenses for health care, personal property taxes (such as car registration fees), gifts to charity, mortgage interest, job-related expenses, investment-related expenses, and tax preparation fees. One of the best ways to do this is to keep track of your itemized expenses through the year and then compare them with your standard deduction when filing your return. You can then decide which deduction to go for. The three biggest itemized deductions include gifts to charity, mortgage interest and state taxes.
Take Advantage of Tax Credits
You can also get Tax Credits for a long list of things including adoption, child care expenses, and college expenses. There are two education-related tax credits. The Hope Credit is for students in their first two years of college. The Lifetime Learning Credit is for anyone taking college classes.
Your tax advisor can give you more information and strategies for reducing your taxes.
- Dangers of Do-It-Yourself Estate Planning - August 1, 2021
- “Last Will and Testament” Origin - April 1, 2021
- How to Dispose of “Stuff” - April 1, 2021
