How to Save Money on Taxes

Step-by-Step Guide

1. 1

   Step 1: Be aware of tax credits.

   If you are a low to moderate-income taxpayer, then you may qualify for the earned income tax credit.
   
   If you are making less than $50,000 a year, then it is a good idea to investigate this instant credit.
   
   This credit can save you thousands of dollars and will come directly from the tax that you owe.You can also apply for the little-known American Opportunity Tax Credit, which counts if you are pursuing a college degree.
   
   The Lifetime Learning Credit also helps adults who are advancing their formal education or training.
2. 2

   Step 2: Contribute to tax sheltered retirement funds provided by your employer.

   If your employer allows to get your take home pay after subtracting contributions to retirement funds, then take advantage of this option.
   
   This is one way to lower your taxable income, while also receiving the benefit of future security.
   
   In addition, if your employer offers a matching contribution, you can save even more tax-free. , If you employer allows you to contribute to a medical reimbursement account or health savings plan (HSA), it is a good idea to do so.
   
   These plans will lower your taxable salary, diverting some of your original funds to pay for future medical expenses.
   
   There is a maximum amount that you can contribute, so be aware of that limit for your particular year as well., A banker or accountant can help you to set up these accounts and can also help you to budget for maximum tax-deductible contributions.
   
   If you contribute funds to these accounts, then they do not count as taxable income.
   
   You can also fund a Roth IRA for a relative, so that they can benefit from the tax-free growth.A Roth IRA is also a great way to save for a home.
   
   With certain restrictions, it is possible to withdraw up to $10,000 tax-free for use in the purchase of your first home. , Make sure to keep all receipts showing any type of funds used for charity, including purchases that you make to benefit a charitable organization.
   
   You can add these costs up alongside any direct cash contributions to determine how much of a deduction you are owed.
   
   Keep in mind that you will need to file for an itemized deduction in order to fully claim your contributions.A legitimate charitable organization will be able to provide you with a receipt for tangible donations, such as clothing or toys.
   
   Make sure that the receipt is fully dated and signed. , Instead of giving cash or clothing, you might consider signing over appreciated stocks or mutual fund shares.
   
   You will want to focus on those stocks that you’ve owned for over a year.
   
   You will then be able to deduct the fair market value of these assets, not the amount that you originally paid for them.However, do not donate stocks that are on a downswing.
   
   You would be better off selling them and then claiming the loss in your tax paperwork.
   
   This would also allow you to still give a cash donation to the charity, if you choose.
3. 3

   Step 3: Go for a HSA.

4. 4

   Step 4: Set up a Keogh Fund or Individual Retirement Account (IRA).

5. 5

   Step 5: Calculate your charitable contributions.

6. 6

   Step 6: Donate stocks to your favorite charity.

Detailed Guide

About the Author