How To Prepare For The Next Tax Season

With the growing expenses, it has become really difficult to save money. Without savings, it becomes difficult to file taxes. Wouldn’t it be better to prepare for the tax season before it hits you hard? When you prepare to pay taxes, there might be many expenses you might want to cut down to lower your tax bill and keep more in your pocket.

Polina/Pexels | So, start preparing for the next tax season from now

We have outlined some smart moves you can practice to make it less painful when you file your taxes.

Adjust Your Withholding

The first step should be to show that enough money is being withheld from your salary to avoid large tax bills and underpayment penalties in the next tax filing. If you are employed and own a lot more money than when you filed a return, then fill out Form W-4. Submit this form to your payroll department, where they will adjust the updated amount being withheld from your paycheck for the remaining year.

If you are self-employed then you’ll have to hire a tax advisor to estimate your tax payments for the whole year.

Contribute To A Retirement Account

A smart way to save on taxes is to spend money on things that do not qualify for tax deductions. You can contribute to a tax-free retirement account to save money for your retirement.

Antoni/Pexels | You can contribute to a tax-free retirement account to save money for your retirement

Contribute To A Health Savings Account

A Health Savings Account (HSA) is a tax-free account in which you can deposit money for medical expenses. Contributing to such accounts can help you save money for serious health issues. Contributing to HSA lowers the taxable income and offers triple the tax benefits. Moreover, it means that you can eliminate the taxes on investment returns in the account. Also, withdrawals from HSA are tax-free as long as you use the money from the account to cover your medical expenses.

Donate To Charities

You can request a tax write-off for all the cash and non-cash contributions you make to charitable organizations. However, the deductions are limited to 50% of your adjusted gross income. Almost 90% of the taxpayers claim for a standard deduction as it provides a larger tax benefit than itemizing tax deductions. To get the most benefits from your charities, you should donate collectively instead of giving small amounts at intervals.

Yan/Pexels |Being a parent, you can claim a child tax credit.

Take Credit For Being A Parent

If you are a parent, you can use this to your advantage to get the child tax credit. The child tax credit is worth $2000 per dependent child under the age of 17. The tax targets high-income taxpayers based on their Modified Adjusted Gross Income. If you’re a single filer with MAGI of more than $200,000 or a joint filer with MAGI of more than $400k, then you can claim the child tax credit. 

Get Credit On Paying For College

If you paid for college for a dependent or a spouse, you are entitled to two tax credits that can help offset some costs. The American opportunity tax credit is worth $2500 per student for the four years of college. To qualify, students should prove that they enrolled and pursued a degree.