Every year, millions of Americans are slammed by a tax bill that isn’t what they were expecting. If that sounds like you, then you’ve felt the squeeze of paying out more than you were ready for. If you’re a freelancer, have irregular or multiple income sources, or if you’re just not the most prudent bookkeeper, then you’re at an even greater risk of being hit with a large tax bill. However, with just a bit of effort and the right tools, you can simply and easily stay informed about your taxes throughout the year. Here are some tips to help you minimize your taxes this year.
1. Make sure you contribute to your 401k retirement account. Contributions to your 401k reduce the amount of income you can be taxed on (your adjusted gross income) dollar for dollar. This means tax savings for you.
2. If you’re a student, you may qualify for some valuable credits. If you took classes this year towards a degree, make sure you take the American Opportunity Tax Credit (ATOC). This credit can save you $2500 each year for up to four years. If you don’t qualify for the AOTC, you may still qualify for the Lifetime Learning Credit. The Lifetime Learning Credit applies to education that doesn’t necessarily result in a degree or certification, and is worth up to $2000. There is no limit on the number of years you can claim the Lifetime Learning Credit.
3. If you’re a freelancer, record all of your business expenses. These expenses reduce the amount of income you can be taxed on. Using a tool like Lilac makes it easy to record your expenses and save money on taxes.
4. Depending on your income level, whether you're single or married and whether you're filing jointly, you may qualify to earn up to $1,000 in tax credits per child. However, for you to be eligible to receive this credit, the IRS requires various criteria to be met. For example, the child must be under 17, a relative, claimed as a dependent on your federal tax return and living with you a certain percentage of the time.
Using these tips and staying on top of your taxes throughout the year makes sure you keep as much money as possible. Stay tuned for more money-saving tips!