Free Investment Advice

Paying taxes is a part of life, it’s something that we can not avoid. But the amount you pay makes a big difference! There are ways to reduce the amount you owe at tax time, and this article will list three ways for you to start.

1. Make use of tax credits. Everyone knows that tax credits are better than tax deductions. Tax credits can lower the amount of money you owe to the IRS. If your child is currently studying in college, you can claim the education tax credit. You can open a Coverdell education savings account, you can put at least $2000 into an account especially for your child’s educational expense.

Parents can also opt to use the HOPE tax credit, also known as the Lifetime Learning tax credit. If you have paid expenses during the calendar year for your child or dependent, you can claim this tax credit. The earned income tax credit is for both singles and married who live in low to medium income homes. More credit is gained if you have qualifying dependents, but that doesn’t mean you won’t qualify without them.

2. Itemize your deductions. Do you have a home office, or care for an elderly relative who lives with you, or have you contributed to charity? If so, you would be better off if you itemize for your tax return rather than taking the standard deduction. Although this process is time-consuming, but it’s worth the effort as you could be paying less taxes in the end.

If this is the first time that you have tried to itemize, you should hire a tax consultant. They will be able to help you with better advice and help you lower your taxable income significantly.
3. Use your status to your advantage. Did you know that you have a choice in filling your status? If you’re married, you can choose to file Jointly or file Separately. If you’re a single parent, you can choose to file as Single or as Head of Household. If you file as Head of Household or Jointly, you will get a larger standard deduction. But at the same time, this filing status determines your tax exemptions. For example, as a Head of Household you can claim yourself and your children.

Don’t take the easy way out and file only the standard deduction each year, you could save a lot of money if you look around and do some research.