Taxes and the simple idea of saving money at the end of a given year has become quite difficult. This is attributed to the fact that many financial advisors are not fully aware of what ought to be done in order to lower the taxes and make substantial savings during the preparation and filing of your tax returns. This ought to be done while simultaneously ensuring that you completely avoid any possible tax penalties.
Many people tend to think that there is not any specific and effective way of saving money using proper tax tips. This article shall delve deep and try to debunk this myth hence depicting how you can save money by lowering your taxes. You might therefore be having a very decent financial year, recovering from past losses or simply scraping and trying to get off the ground but you might still make sizeable savings if you follow the right moves prior to the end of the year.
The deadline for funding the retirement account is April 15 2020. Making these deductible contributions aids to lower the tax bill for this financial year. It is vital to note that these contributions also help to compound the tax deferred and it is impossible to find such a perfect deal. The contribution to your specific personal or individual account helps to reap significant tax benefits. This is achieved through a reduction of the taxable income and consequently making retirement savings at the same time.
There also exists a Simplified Employee Pension Account for those who are self-employed where the maximum contribution is $56,000 for this year. To be more precise, the limit for the contribution is just 25% of your total net earnings.
Many people opt for the usual standard deduction. However, you can save a lot of money if you itemize your tax deductions. This is mostly applicable and feasible for people who are self-employed, those who live in a very high tax region and homeowners too. Some deductions such as charitable donations and mortgage interests are clearly known by many. There exists a well-defined standard deduction of $12,200 for those who are single and $24,400 for couples with joint filings. If your expenses are way above this, then itemizing can help you make great savings.
These forms can be downloaded online from the Internal Revenue Service website or you can alternatively just have them sent by mail. The IRS is very vital as it also directs you to other websites where you can collect the distinct state forms and publications. This reduces the hassles of deciding which forms to use hence ultimately saving on money which could have been alternatively wasted if one used the wrong forms or spent a lot of money trying to trace the correct tax forms.
These credits help to reduce tax bills significantly. An example is for those families that have a child under the age of 17. Children under that age qualify for a deduction of up to $2000 from their income taxes – federal to be specific. Some parents also use day care services hence qualifying for the $3000 deduction for the child or $6000 deduction for two children or more. This is as long as they are eligible for the Child and Dependent Care Tax Credit.
This significantly reduces the taxable income. The deadline for doing this is also April 2020 and you require a high deductible health plan for you to be able to do this. This contribution not only helps with the reduction of the taxable income but it also aids in making proper arrangements regarding any future medical expenditure.
This is quite fitting in the planning of your own finances for long-term purposes. In case you are single, you can make contributions of up to $3500 whereas the limit for couples and families is $7000. People above the age of 55 can make additional contributions of around $1000. This contribution has massive advantages hence you should definitely consider it.
The aforementioned clearly highlights the varying tips that can be employed to make ample savings this year. It is a year, which will entail majors windfalls for people who follow the foregoing tips prior to the deadline. Therefore, the earlier you work out the numbers of your potential return, the better off you can be.