22 Ways to Save Money on Income Taxes This Year
It’s that time of year again. Tax time. Some people love this time of year because they pay taxes through their employer all year long and actually get money back after filing their annual income tax returns. Many people don’t feel that way at all since they end up owing the government some money at this time of year. Either way, there are things that you can do to reduce the cost of doing your taxes and get more money back this year.
Here are 22 money-saving tax tips:
1. Use coupons when buying tax preparation software. There are a lot of tax software programs available. Use discount codes to reduce the cost of any that you choose to buy this year.
2. Include your charitable contributions on your taxes. That means if you donated some clothes to Goodwill a year ago then they should be counted as a deduction this year on your taxes.
3. Get your credits. Make sure that you get your tax credits that are coming to you. Some examples of tax credits that may apply to you include:
- Education credits
- Child care credits
- Retirement credits
- Earned income credits
- Energy efficiency credits
4. Itemize. It’s worth it!
5. Consider hiring a tax professional. The cost can be worth it because these people know exactly how to get you the most money back on your tax return. Shop around for a good tax professional by getting recommendations for others.
6. Second guess your tax professional. Just because you hire one doesn’t mean that you should take everything they say at face value. Make sure that you have the professional explain your tax return to you completely before filing it. Ask questions if you need to.
7. Ask your tax preparer for a fee reduction. It never hurts to ask. You can offer to barter a service of your own or do some social promotion for the preparer in exchange for the discount.
8. File on time. There are late fees and penalties for people who file their taxes late. This is true even if you request an extension; even though this allows you file late, you do have to still pay those fees when you do file.
9. Pay your taxes with your savings, not with a loan. Avoid paying your taxes with a credit card if at all possible. You’re just begging to pay more money because of the interest fees associated with credit cards.
10. Pay your taxes with a rewards credit card. The one exception to the above rule is that you may want to consider using a cash back rewards credit card to pay your taxes. If you pay the entire balance off in full immediately and don’t accrue interest then this can mean you get a nice chunk of cash back for the money that you spend paying your taxes.
11. Be aware of the fees associated with various methods of payment. For example if you use the Electronic Federal Tax Payment System to pay your taxes online, you will be charged a specific fee for the transaction. If you can pay with a check via mail instead then you can avoid that fee.
12. Invest your return. If you’re one of the lucky people who is getting money back this year from your taxes then you should take that money and invest it. Investing in a long-term high interest online CD would be one great option for turning that money into more money down the line.
13. Let your low income work for you. Did you know that people who earned less than $58000 in 2010 can get tax preparation help for free? The IRS has more info.
14. Make sure to take your extra deductions. For example, if you’re a senior citizen who is filing a simple tax form without itemizing then you can take an additional deduction of $1400. Review all deduction options.
15. Never take out a “refund anticipation loan”. This is basically the equivalent of using a payday loan service. You get your money now but it costs you in the long run. Don’t do it.
16. Don’t waste a lot of money on tax supplies. Yes, you might want to get an accordion file folder for your paperwork to keep it organized but you don’t need to spend a fortune at the office supply store to get your taxes in order. Keep it simple.
17. Be honest on your taxes. Don’t fudge anything to save money. You run the risk of getting audited which can cost you both time and money down the road. It’s not worth it.
18. Consider filing separately even though you’re married. Sometimes this does make sense. Personal Dividends has a good explanation of the pros and cons of this option.
19. Get free tax filing advice. Many local community services offer free advice to help you do your taxes properly. So do some larger organizations. For example, the AARP runs an IRS sponsored program to assist the elderly with their taxes.
20. Pay your tax software / preparation fee out of pocket, not from your refund. It keeps your finances simpler and reduces the risk of being overcharged.
21. Think twice before filing your taxes with a phone app. This might be a good option for you but it comes with risks that can end up costing you money despite the fact that the apps themselves are cheap. Green Bank Report explains that a lot of people seem to miss important deductions when using these tools.
22. Review your tax form before submitting it. Double and triple check to make sure that you haven’t missed anything.
What is your number one tip for saving money when filing taxes? Share it in the comments to help out your fellow frugal folks!