Top 20 Ways to Save on Your 2020 Income Taxes

The tax season is here! And with it comes the anxiety and rush for all who file their returns religiously. Whether they do it themselves or hire experts, everyone wants to get the best out of it.  We at Taxprepforyou are here to help you out in this task. Whether you are filing your current return or looking for ways to help you next time, this list would surely help you out. We have collected some basic ways which would help you save your taxes and also help you simplify things for you. So read on and get to know all that can make the filing much easier:

1. Gather all your documents together beforehand. Doing this would make the whole process much more organized, easy and effective. How would you begin? Create a tax checklist to assist you gather all the documents necessary to complete your taxes and maximize your deductions you are entitled to. Keep all the documents that come in the mail in January, for example, W-2s, 1099s and interest statements. Be careful not to toss out any tax-related documents, regardless of whether they don't look insignificant. Gather receipts and data that you have accumulated during the year. Storing similar documents together such as receipts for supplies and placing them in various document organizers if there are sufficient papers will ensure you have complete records. Record the value you paid for any stocks or assets you have sold. In the event that you don't, call your broker before you begin your taxes. Know the subtleties on pay from investment properties. Having this kind of data readily available will spare you another excursion through your documents.

2. Keep the previous return’s information handy. This will help you easily refer to it when required.

3. Include all the above-the-line deductions, for example, salaries, interest, student loans etc. These would reduce your net taxable income, thereby reducing your overall tax

4. Keep a lookout for the tax credits. These credits are often overlooked by the public. The most commonly overlooked is the earned income tax credit.

5. Claim tax credits for your dependents. All child care activities and credits can be claimed, even for summer camps. Other dependents may include partners or relatives that you support. These credits go a long way in reducing your payable tax amount.

6. Take advantage of a Home Office Deduction. You can use either the simple method or Regular method. The eligibility rules for claiming a home office deduction have been loosened to allow more self-employed filers to claim this break. People who have no fixed location for their businesses can claim a home office deduction if they use the space for administrative or management activities, even if they don’t meet clients there. As always, you must use the space exclusively for business. Many taxpayers have avoided the home office tax deduction  because it has been regarded as a red flag for an audit. If you legitimately qualify for the deduction, however, there should be no problem and you are allowed to write off expenses that are associated with the portion of your home where you exclusively conduct business (such as rent, utilities, insurance and housekeeping). The percentage of these costs that is deductible is based on the square footage of the office to the total area of the house.

For example: A middle-class taxpayer who uses a home office and pays $2,000 a month for a two- bedroom apartment and uses one bedroom exclusively as a home office can easily save $2,000 in taxes a year.  People in higher tax brackets with greater expenses can s ave even more.

7. Contributions to retirement plans are also tax-deductible. Contributing as much as you can to your retirement — for example, an individual retirement account — is one of the best ways to reap a tax benefit. By contributing to an IRA, you directly reduce your taxable income and save for your retirement at the same time. 

 

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8.Fund a Health Savings Account (HSA). Another way to reduce your taxable income is to contribute to health savings account, or HSA. (You need what’s known as a high-deductible health plan to do this). And, you have until the deadline to do so for the tax year. Health savings account contributions can reduce your income eligible for taxation, as well as help with planning future medical costs. HSAs are also a great way to grow your nest egg. The money you put in an HSA has triple tax advantages: The contributions go in pretax, you can withdraw it tax-free for qualified medical expenses and any money you don’t use can be invested and, as with an IRA or 401(k) plan, the gains are tax-deferred.

You can contribute up to $3,500 if you’re single.
The limit goes to $7,000 for couples and families.
You can add an extra $1,000, if you’re 55 or older.

9. Last minute estimated tax payment. If you didn’t pay enough to the IRS during the year, you may have a big tax bill staring you in the face. Plus, you might owe significant interest and penalties, too. According to IRS rules, you must pay 100% of last year’s tax liability or 90% of this year’s tax or you will owe an underpayment penalty.

For example: If your adjusted gross income for 2018 was more than $150,000, you have to pay more than 110% of your 2018 tax liability to be protected from a tax year 2019 underpayment penalty. If you make an estimated payment by January 15, you can erase any penalty for the fourth quarter, but you still will owe a penalty for earlier quarters if you did not send in any estimated payments back then. But, if your income windfall arrived after August 31, 2019, you can file Form 2210: Underpayment of Estimated Tax to annualize your estimated tax liability, and possibly reduce any extra charges.

10. If your state does not have an income tax, look for a sales tax deduction that can claim on your form.

11. Mortgage points also have a tax impact. Consult with your loan provider to discuss details of the tax impact of financing and refinancing points.

12. Be sure you find the correct tax form that suits your circumstances. Several libraries have them in stock and you can get the appropriate one from them.

13. Include the dependent taxpayer IDs on your form so that their credits can be claimed.

14. File all your forms on time. Even if you are unable to complete your return before the deadline, apply for an extension and pay off an estimated amount.

15. Use electronic form filling whenever possible. This is a quicker and easier way to file your returns.

16. If your return is complicated and lengthy, do not hesitate to hire professionals. This will ensure the correct filling and maximize effectiveness.

17. Be up to date with the changes in rules and regulations. Since the global pandemic outbreak of COVID-19, several rules have changed to facilitate the public, include deadlines, credits and penalties.

18. Reinvested dividends come as a direct deduction from your tax liability. So try to invest earned dividends in extra shares to earn a tax deduction.

19. Include the dependent taxpayer IDs on your form so that their credits can be claimed.

20. Remember your tax-free municipal bonds are totally free from charges.  

So now that you have an idea on what all you can do to save on taxes, get on with it and file all your returns like a pro or connect with one of our pros at Taxprepforyou.