1. Correct Tax Withholding
There is one key aspect to taxes that individuals must learn and it is CRUCIAL. Tax Refunds are bad! Simple Right? Allow me to explain. Over 80 percent of tax payers overpay their taxes each and every year at about $3,000 per year. The IRS would rather allow you to keep that money in your household instead of issuing you a refund at the end of the tax season. Uncle sam does not pay interest on loans and that is what the majority of taxpayers are actually doing.
Let’s make it even more simple…Let’s assume you owed $6,000 in taxes and you payed $9,000 for the year. You would get a refund of $3,000. A tax refund is just that, a REFUND. For example, I buy a meal of $10 and pay with $20, I get back a REFUND for $10. No extra money was earned, given, or circulated.
The key take away from this is that you can actually change this overpayment of taxes instantly with adjusting your tax withholding via the W-4 form. With correcting you tax withholding most individuals gain several hundred dollars per month back on their paychecks. Granted you don’t get a refund however, you have more cashflow so you do not have to swipe a credit card for gas, groceries, or bills!
2. Increase Donations
Donations are tax deductible to non-profit organizations. This is very simple! For example, I am part of a business forum that is funded by donations of its members. We are giving receipts for all our donations which are tax deductible. The key is to have records of the donations. Options for donations can be church organizations, non-profit organizations, local schools that are non-profit, and charities just to name a few.
Research options in your area. The receiving party gets funds and you get lower taxes. It’s a win/win. SO next time you hear about the big celebrity donating thousands to a charity and how big their hear is, understand there is another perk!
3. Increase Retirement Contributions
One of the best tax savings vehicles for individuals to start is some type of retirement contribution plan! Plans like the 401K and IRA allows a person to put a certain amount of their income away for retirement in the future. The IRS allows a person to do this on a pre-tax basis, as with the 401K, and the amount contributed is a tax deductible expense. Let’s say you made $50,000 this year and put $5,000 in your 401K. The $5,000 will be deducted from you income and be recognized as $45,000 before our other deductions on your taxes.
There a plenty of options out there as retirement vehicles! You have to decide which one is right for you and begin tucking your money away for the raining day while receiving a tax benefit for doing so!
4. Pay Your Student Loans
With student loan debt crippling the country and the American people, it is safe to assume that many people incurred student loans in search of the “American Dream”. However, with the state of the job market and economy, students are graduating with tremendous student loan debt and little to know income to cover the loans.
Although a terrible situation for most, many do not know that you can deduct up to $2,500 a year if you meet the income requirements of less than $75,000 single and $155,000 married/per year. Let’s face it if you were making that much you would not be struggling to make your payments. If you are making payments and meet the qualifications, TAKE THE DEDUCTION. Link for explanation http://www.irs.gov/publications/p970/ch04.html
5. Start A Home Based Business
Starting a home business can provide a very aggressive tax savings vehicle if you have the proper knowledge! Personally this is my favorite way to save on taxes. Why? A home business allows you to qualify for business tax deductions without the traditional brick and mortar expenses. For example, you can generally deduct your communications (phone, cell phone, internet) cost if you have a traditional office in a building outside your home. This is very common. However, if you have a home business you can deduct a portion of your personal communication expenses (phone, cell phone, internet) for having a home business,
Another example is your personal vehicle. The government gives $0.54 per mile driving for business. Let’s put it into perspective! It’s Friday night and you are heading out to hang with friends and meet new people. You drive to your favorite dive bar 30 miles across town. You have fun and chat for the night. You receive no tax deduction because you do not have a business. Let’s flip it. You do the same actions however, since you were smart and give a new person your number and a 2 minute overview of your business. You qualify to now deduct those miles driven! 30 miles x 54 cents is $16 in tax deductions. Let’s say you go out 4 times a month to the same bar. That’s almost $800 per year just on just those trips to the bar alone. Think about all the other places you drive and maybe now can be tax deductible.
There are 2 requirements an individual must have to qualify. First, a business (intent to produce a profit) 2. adequate records of your expenses to provide as proof. Fortunately, I do teach individuals both and provide guidance to save thousands on taxes every year with a proven system.
Hopefully it is clear on how you can take this tips and begin saving on your taxes tremendously. Please note that I am not a tax professional but a cashflow strategist. My team and I have helped numerous families to date. We’re always willing to work with you on understanding how you can improve your financial position.