Tax season can be a stressful time for workers, trying to ensure you have everything all organized to get the quickest return.
Also, taxpayers are always looking to make sure they can get the most back from their filing.
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While it can be overwhelming, the U.S. Sun spoke to a leading tax expert who shared his best tips on how to save money.
The U.S. Sun previously revealed that some experts warned Americans could be leaving up to $5,000 on the table by not planning properly.
Also, some experts have warned that people overlook credits and deductions available to them.
Taxes for 2024 returns are due on April 15 for most people; however there are exceptions for some filers.
These include about 10 million people impacted by the Los Angeles fires, with those affected having until October 15 to file.
Stephen Fishman, who has authored several books on tax, shared his seven essential tips to reduce your taxable income and the taxes you owe.
By following these “basic” tips, Fishmen said you will likely owe less money to the IRS at the end of the year.
“These are basic tax-saving strategies that every taxpayer should know,” Fishman told The U.S. Sun.
“They don’t involve offshore bank accounts or convoluted tax shelters.
“These tax planning devices are easy to understand and put to use and are most likely to save you (the average taxpayer) money.”
‘EARN TAX FREE INCOME’
Firstly, Fishman said filers should fine ways to “earn tax-free income” as certain types of income aren’t subject to income tax at all.
Fishmen said the single best way to avoid taxes was to earn as much tax-free income as possible.
The most common ways to do this are selling your home, saving money for your children’s education, investing in municipal bonds and contributing to a health savings account.
Also, tax payers can consider giving some investments to your children which will lower your tax threshold.
TAKE ADVANTAGE OF TAX CREDITS
Secondly, filers should take advantage of tax credits including buying an electric vehicle, making home energy efficiency improvements such as adding solar panels or water heater toy our home.
“Getting a tax credit is the next best thing to paying no taxes at all because it reduces your taxes dollar for dollar, something a deduction doesn’t do.
“Congress has taken a great liking to tax credits in recent years and is adding new credits all the time.”
DEFER YOUR TAXES
Thirdly, Fishman said think about deferring taxes saying that is like “getting a free loan from the government”.
“You’ll have to pay income tax on your taxable income sooner or later, but you’ll usually be better off if you make it later,” Fishman said.
“Deferring payment of taxes to a future year is like getting a free loan from the government. There are many ways to do this, from postponing an employer bonus to investing in IRAs and other retirement accounts.”
MAXIMIZE DEDUCTIONS
Fishman also said people should maximize their tax deductions, as the more deductions you have the less tax you will pay.
These include business deductions such as inventory or home office goods, travel and operational costs.
Also, taxpayers are entitled to take a standard deduction or itemize their deductions on things like home mortgage interest and property taxes.
LOWER YOUR TAX RATE
Fishman also said to think about lowering your tax rate, by earning income from long term investments like stocks, bonds, mutual funds and real estate.
“The profits you earn from these investments are taxed at long-term capital gains rates, which are lower than federal income tax rates,” he said.
“The capital gains tax rate on long-term gains is 20% for higher-income taxpayers people at the top end of the 35% bracket or the 37% bracket.
“For anyone in the 22%, 24%, or 32% tax brackets, the capital gains tax rate is 15%.”
Who is eligible for the Middle Class Tax Refund
California residents had to meet certain criteria in order to qualify for the payments.
- Filed 2020 tax return by October 15, 2021
- Met the California adjusted gross income limits
- Were not eligible to be claimed as a dependent in the 2020 tax year
- Were a California resident for six months or more of the 2020 tax year
- Were a California resident on the date the payment was issued
CONSIDER ‘INCOME SHIFTING’
Fishman added people in higher tax brackets may consider shifting their income to someone in a lower tax bracket such as your children.
“This process is called “income shifting” or “income splitting,” he said.
Lastly, people should take advantage of their filing status according to Fishman.
“Few people give much thought to their tax filing status, but it can have a big effect on the taxes you pay,” he said.
“Which filing status you choose (and taxpayers often have a choice) will determine the tax bracket you fall in.
“Your filing status is also crucial for calculating your standard deduction.”
