How to Reduce Your Taxable Income
Every April, anxious taxpayers begrudgingly file their income taxes, wishing they could pay fewer federal taxes and keep more of their earnings. Though choosing not to pay your taxes could result in jail time and hefty fines, it doesn’t mean you are destined to give a huge chunk of your income to Uncle Sam. Instead, reduce your taxable income by taking a few simple steps to relieve your burden on tax day. You can know more details about reducing the taxable income from the tax attorneys in Albany, NY. Few steps you can follow to reduce the taxable income are given below:
Increase Your Charitable Contributions
Charitable contributions include donations made to any non-profit organization recognized as a 501(c)3 entity by the government. You can donate to your favorite charity, tithe to your church or provide finances to another non-profit organization. If you don’t have any spare cash, try donating goods, new or used, to an organization like Goodwill or the Salvation Army. These businesses will provide you with an itemized receipt complete with the value of your donated goods. This donation is as good as cash, and will lower your tax liability. It is important to know that donations to political campaigns do not qualify for such deductions.
Increase Your Retirement Contributions
Many retirement accounts offer immediate tax benefits when you make contributions to them. Any money you put in your employer-sponsored 401(k) or traditional IRA is 100 percent tax deductible. Best of all, you donations to such accounts can be made through the first quarter of the following year, and still be applied to the previous year’s tax bill. Roth IRAs and other tax-deferred accounts do not apply to this rule, as they provide tax-free growth on taxed contributions.
Analyze Your Deductions
Each year, millions of dollars in unclaimed deductions are missed by taxpayers. You may be paying too much if you aren’t fully aware of all the deductions you qualify for. For example, mortgage interest, real estate taxes, certain health care expenses, moving expenses, job-related expenses and even tax preparation fees are deductible on your yearly income taxes. The best way to know that you are taking advantage of all the federal tax deductions available to you is to seek the help of a tax professional. Though you may spend more money up front on preparation fees, you may save hundreds or even thousands of dollars in missed deductions.
Available Tax Credits
If your adjusted gross income is not be able to budget any more, and your tax bill is still steep, check to see if you missed any available tax credits. Unlike a deduction, which lowers the amount of taxable income you have, a credit is much more valuable and is applied directly to your tax bill. For example, if you have children, you are entitled to a $1,000 tax credit per eligible child under age 17. The Earned Income Credit is another popular credit, and it is applied to the tax bill of low income taxpayers. Other credits are available for adoptions and education expenses.
If you are unable to lower your tax liability to the level you need, you can file for a tax extension. Most extensions allow you an extra six months each year to file your federal income taxes and pay an tax owed. To avoid being caught in a bind next year, try increasing your monthly paycheck withholding to ensure that your taxes are covered next April.