No one likes paying taxes, but unfortunately, it’s a necessary evil. However, there are some ways that you can lower your tax bill and keep more of your hard-earned money. In this blog post, we will explore five genius ways to lower your taxes. From taking advantage of deductions to claiming tax credits, read on to learn how you can keep more of your money come tax time.
1. The Standard Deduction
The Standard Deduction is a set amount that you can deduct from your taxable income. The amount changes every year, and for 2019, it is $12,200 for single filers and $24,400 for married couples filing jointly. The Standard Deduction is the simplest and most common way to reduce your taxable income.
2. Itemizing Deductions
If you itemize your deductions, you can lower your taxes by deducting certain expenses. These expenses can include charitable donations, medical expenses, and home mortgage interest. To itemize your deductions, you will need to file a Schedule A with your tax return.
3. Tax Credits
When it comes to finding ways to lower your taxes, there are a number of tax credits that you may be eligible for. These tax credits can help reduce your overall tax liability, and in some cases, may even provide a refund.
Some of the most common tax credits include the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), and the American Opportunity Tax Credit (AOTC). These credits are available to taxpayers who meet certain income and family requirements.
Other less common tax credits include the Alternative Fuel Vehicle (AFV) Credit, the Solar Energy Credit, and the Historic Rehabilitation Tax Credit. These credits are typically available to businesses or individuals who make investments in certain types of property or equipment.
If you think you may be eligible for any of these tax credits, be sure to speak with a qualified tax professional to determine if you qualify and how much you could potentially save on your taxes.
4. Retirement Accounts
There are a few different types of retirement accounts, each with their own tax benefits.
The most common type of retirement account is the 401(k). Employers often match a certain percentage of employee contributions, making it a great way to save for retirement. With a 401(k), contributions are made with pretax dollars, which lowers your taxable income for the year. The money in the account grows tax-deferred, meaning you won’t pay taxes on it until you withdraw the money in retirement.
Another type of retirement account is the traditional IRA. Like a 401(k), contributions to a traditional IRA are made with pretax dollars, lowering your taxable income for the year. The money in the account grows tax-deferred, and you won’t pay taxes on it until you withdraw the money in retirement.
With a Roth IRA, contributions are made with after-tax dollars, so they don’t lower your taxable income for the year. But the money in the account grows tax-free, and you can withdraw the money in retirement without paying any taxes on it.
Finally, there’s the SEP IRA, which is designed for self-employed people or small business owners. Contributions to a SEP IRA are made with after-tax dollars, but they grow tax-deferred and can be withdrawn tax-free in retirement.
5. Charitable Contributions
If you itemize your deductions, you can claim a deduction for qualifying charitable contributions. To be deductible, the charity must be qualified by the IRS. The IRS has a searchable database of qualified charities.
Your contribution must be for a qualifying charitable purpose. Qualifying purposes include relief of the poor and distressed, advancement of religion, advancement of education or science, and certain other purposes that benefit the community in general.
Your contribution must be made to a qualifying organization. Qualifying organizations include most charities organized and operated in the United States as well as some foreign charities. To find out if a charity is qualified, you can check the IRS website or contact the charity directly.
You must have receipts or other written evidence to substantiate your contributions. For cash contributions, regardless of amount, you must maintain either a bank record or a written communication from the charity showing the name of the charity, the date of the contribution, and the amount of the contribution.
Contributions by check, your canceled check is sufficient documentation. For contributions made by credit card, you should maintain either your credit card statement or a written communication from the charity showing the name of the charity, the date of charge to your card, and