You Could Be Paying Less in Taxes With These 7 Strategies

They say it because it’s true: The only certain things in life are death and taxes.

While we’re still working on the whole immortality thing, we have found some ways to reduce that pesky bill from Uncle Sam each April.

Don’t worry, we’re not talking about tax evasion. Throwing some bones to the government is a way better alternative than going to jail. (And besides, who doesn’t like roads and public libraries?)

But there are some totally aboveboard ways to keep more of your hard-earned dollars in your pocket.

Here are some ways to save money on taxes that won’t get you in trouble with Uncle Sam.

1. Reduce Your Taxable Income

One surefire way to not pay income tax: don’t earn any income!

Of course, for most of us, that plan won’t work. Unless you’re independently wealthy (or Bear Grylls-ing it in the woods somewhere), you need money to live on.

But there are ways to reduce your taxable income while still earning a living — and doing them might put you in a lower tax bracket. (To review: the amount you pay in income tax depends on how much of that income you earn, with higher earners being required, sensibly, to pay a higher percentage.)

The easiest way to reduce your taxable income — without throwing in the towel at work, of course — is to contribute to a tax-deferred retirement savings vehicle, like your company’s 401(k) plan.

Wages you defer to a 401(k) don’t count toward your taxable income for the year you make the contribution, though they will be taxed when you make withdrawals later.

Depending on how much you earn and how much you put away, you might be able to edge yourself down into a lower tax bracket… all while feeding your growing nest egg and setting yourself up for a comfortable retirement. Smart finances all around!

Which leads us to our second suggestion…

2. Contribute to a Traditional IRA

Woman managing the debt

Even if you already have a retirement savings account at work, like a 401(k) or a 457(b), you can still open and contribute to a traditional IRA (Individual Retirement Account) — you just need to have earned taxable income and not yet have reached age 70 ½.

What Is a Traditional IRA?

Just like that company-sponsored retirement plan we were talking about, the funds you contribute to your IRA don’t count toward your taxable income.

The exception: a Roth IRA, in which contributions are taxed today but then grow tax-free thereafter.

How Much Can You Contribute?

For 2018, you can contribute up to $ 5,500 to an IRA, or $ 6,500 if you’re over the age of 50. (Looking ahead to the future? 2019’s contribution caps have been raised to $ 6,000 and $ 7,000, respectively.)

Keep in mind that you have until tax day to max out your contribution for the previous calendar year.

An important caveat: If you’re a relatively high roller (i.e., you earn more than $ 100,000), you may not be able to deduct your full IRA contribution or any contribution at all.

Your specific eligibility will depend on whether you’re filing singly or jointly and whether or not you’re covered by a retirement plan at work; head to the IRS website for full details on these phase-out limits.

3. Consider a Health Savings Account

While IRAs are widely available and applicable to almost everyone, quite a few other investment accounts can get you this same kind of tax break.

What Is a Health Savings Account?

A Health Savings Account (HSA), is a tax-exempt option if your healthcare plan has a high deductible. Not only are your contributions deductible, but withdrawals aren’t taxed, either, as long as they’re used for qualified medical expenses.

How Much Can You Contribute?

In 2019, you can contribute up to $ 3,500 to an HSA if you have individual coverage, and up to $ 7,000 if your high-deductible health care plan (HDHP) covers a family.

And you don’t have to spend it all, either — you can leave funds in your HSA indefinitely since they’re not subject to required minimum distributions. (And if you’re like most of us, you’ll have more health care-related costs as you get older, anyway.)

However, do keep in mind that if you receive Medicare coverage, you might not be eligible to make HSA contributions, since you’ll have coverage outside of your HDHP.

4. Put Your Kids Through College

If you’ve got kids, chances are you’re already gritting your teeth just thinking about paying for college — even if you’re not planning on paying for all of it.

According to U.S. News & World Report, average costs range from $ 9,716 to $ 35,676 for a single year of education, so it’s important to get ahead of that bill now.

What Is a 529 Plan?

A 529 plan is an investment vehicle specifically built for educational savings. You can use it to pay for your kids’ college tuition — or even to send yourself or your spouse to school. The exact tax benefits vary by state, and the contributions aren’t deductible on your federal return.

But more than 30 states offer full or partial tax deduction or credits on 529 contributions, and the funds are allowed to grow tax-free. They won’t be taxed on withdrawal, either, so long as they’re used for qualified educational expenses.

What Expenses Qualify for the 529 Plan?

What qualifies, you ask? College tuition, fees, books and computers all count, and in some cases, it’ll cover room and board.  You can also take out up to $ 10,000 per year to pay for tuition at private or religious K-12 schools. (That’s $ 10,000 per beneficiary.)

But if you try to take the money out to pay for red Solo cups, you’ll be subject to regular income tax on the withdrawal, as well as an additional 10% penalty. So keep those noses in the books if you want to keep your own books nice and tidy!

5. Give It Away

Woman sorting through clothes in her home.

Looking for a way to save money on taxes… and get that warm, fuzzy feeling? Charitable donations are tax-deductible, and they can be a great way to lower your overall tax liability.

The easiest way to go about this strategy might be to just write a check to your favorite charity. But if you’re KonMari-ing your life, you can also itemize those trash-bagged Goodwill donations as deductions. (Of course, you will need to say “yes” when the attendant asks if you want a receipt, should you want to do so.)

But Keep the Books

Of course, doing so does mean keeping track of the estimated value of each of those old t-shirts and coffee makers. But lots of tax software includes tools to help you.

For instance, TurboTax’s ItsDeductible module will keep a running tally of your donations year-round, and help you make those value estimations in the first place.

The cans you drop off at the local food bank count, too, as do certain out-of-pocket expenses incurred by volunteering, such as gas and mileage.

You’ll save money while serving your community — what more could you ask of a tax-reduction strategy?

6. Know Your Deductions

You may already know that certain expenses are tax-deductible. But which ones, exactly?

Major medical bills: If you’ve spent more than 7.5% of your AGI (adjusted gross income) on qualified medical expenses, you may be able to write them off.

Student loan debt interest: Deductible up to $ 2,500

Mortgage interest and local property taxes: These may both be eligible for partial deductions — and if you’re a first-time buyer, you may be able to make penalty-free withdrawals from that IRA we were talking about earlier.

Charitable donations: These have a tax-deductible status, as mentioned above.

Business-related deductions: If you’re a freelancer or you work from home, you should also look into business-related deductions, like the cost of your home office space.

You might also be able to deduct certain supplies, travel expenses, and even meals and entertainment. Here are the full deets on freelancing deductions.

Itemizing your deductions does take time, however, and not everyone has enough to supersede the standard deduction — which is a fairly hefty $ 12,000 for single filers and $ 24,000 for joint filers in 2018.

So if you haven’t footed any of the expenses we mentioned, consider skipping this strategy.

7. Take Advantage of Tax Credits

In certain scenarios, the IRS extends credits to eligible taxpayers — for instance, those pursuing continued education or returning to school.

American Opportunity or Lifetime Learning Credits: Depending on your enrollment status, AGI, and how you’ve paid for educational expenses, you may be entitled to the American Opportunity or Lifetime Learning Credits, along with tuition and fee deductions. (Check out this quick quiz from the IRS, which will tell you if you’re qualified in just 10 minutes.)

Earned Income Tax Credit: If you’re not quite making fat stacks, you might be eligible for the Earned Income Tax Credit, a benefit the IRS extends to low-to-moderate earners.

Your credit depends on your exact level of income as well as your marital status and number of dependents. For details, check out the IRS’ Earned Income Tax Credit fact sheet.

The cool thing about tax credits is that they don’t just reduce the amount you’ll pay in income taxes. Rather, they count as an actual reduction of your total tax bill.

So, for instance, if you would have owed $ 500 and claim $ 1,000 in tax credits, not only will your payment be waived — you’ll also receive a $ 500 return.

3 Ways to Save Money on Taxes Today and Tomorrow

A young couple going through their paperwork together at home

While the strategies above are great ways to get ahead of a nasty tax bill this year, taking a proactive approach can help you pay less in taxes every year hereafter. Here are our suggestions.

1. Adjust Your Withholdings.

If you work for an employer, you’ve filed a W-4 — which is the document where you specify how much of your wages should be withheld for taxes.

It might seem intuitive to keep your withholdings as low as possible so you keep more of your paycheck in your pocket. But if you found you owed money in April, you might want to go in and tweak it so you don’t run into the same problem next year.

2. Automate Your Contributions to Those Tax-Deferred Accounts.

Chances are your employer automatically deposits your deferrals into your 401(k). But if you open an IRA, HSA or 529, you’ll have to make contributions manually… and it’s all too easy to forget to do so (or, let’s be honest, spend the money on something else.)

Most account providers will allow you to set up automatic contributions on a regular basis, be it weekly, bi-weekly, or monthly. That way, you’ll be sure to add enough funds to the account to significantly lower your tax bill while boosting the savings you’ll use for those qualified expenses down the line.

3. Work for Yourself? Don’t Forget to Pay Your Quarterlies!

Freelancers get a lot of autonomy, but it does come with a substantial drawback: Nobody’s withholding your taxes for you, so you’ve got to pay them yourself.

And if you don’t keep up with your estimated quarterly tax payments — or if you forget about self-employment tax, which adds an additional 15% to the usual 20% — you could be facing a downright scary situation come April.

So funnel about a third of every paycheck you make into a separate account, and label it “PROPERTY OF UNCLE SAM: DO NOT TOUCH.”

It can be painful to see how much of your hard-earned hustle money has to be shipped off to the government… but not nearly as painful as having to cut a five-figure check come springtime.

Jamie Cattanach’s work has been featured at Fodor’s, Yahoo, SELF, The Huffington Post, The Motley Fool, Roads & Kingdoms and other outlets. Learn more at www.jamiecattanach.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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How to file back taxes

taxes due logo

If you didn’t file you taxes last year (or any year before that) and you’re trying to figure out how to file back taxes, it can be difficult to know where to start.

But take a deep breath — we’re about to walk you through it.

Filing taxes late? Here’s what you need to know

Money expert Clark Howard has long said that when you can’t afford to pay your taxes, you should go ahead and file anyway and pay whatever you can.

Then, if you can pay the remainder within four months as part of an payment plan, you’ll usually only incur a minimal penalty.

We should also note that if you’ve never been in trouble with the IRS before, you may be able to qualify for a first-time penalty abatement. Just one call to the IRS could save you hundreds or thousands of dollars in penalties and fees!

So there is a strong case to be made that filing late by a couple months is much better than not filing at all.

What to do if you haven’t filed back taxes for years

But if it’s been a year or more since you last filed, you’re probably going to have to scramble to come up with the necessary paperwork, like old W2s.

Fortunately, getting the documents you need may be easier than you think!

First off, when you’re ready to file after a long period of not filing, you’ll want to start out by getting prior-year tax return forms. The IRS makes them conveniently available online going back through the decades.

Once you start filling them out, you may find that you need past wage and income information that you don’t readily have available. If that’s the case, there are two routes you can go:

  1. Contact your employer for the required info
  2. If you can’t get in touch with the employer, file out Form 4506-T, Request for Transcript of Tax Return, and check the box on line 8
IRS form 4506 request for transcript of tax return
IRS

You may also need info from a prior year’s tax return. While money expert Clark Howard says you should keep your tax returns forever, maybe you didn’t heed that advice!

In that case, you can use the IRS Get Transcript feature to request what you need.

Meanwhile, if you get deep into the weeds and find you need help filing your back taxes, you can always enlist free help from the IRS.

The Volunteer Income Tax Assistance program provides help to low- and moderate-income taxpayers. Call 1-800-906-9887 to locate the nearest VITA site.

Free tax return prep help is available for those over 50

If you want another option for free help preparing your tax return and you’re of a certain age, you might consider checking out the AARP Foundation Tax-Aide.

The AARP Foundation Tax-Aide offers free tax prep for anyone who is 50 or older — no AARP membership required!

More than 5,000 neighborhood locations in places like libraries, community centers and senior centers will offer the free help. Find a location near you here.

Here are some more articles you might enjoy from Clark.com:

The post How to file back taxes appeared first on Clark Howard.

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Fox News Corrects Guest’s False Claim That Top 1% Earners ‘Pay 99% of the Taxes’

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Shortly after an on-air guest made the false claim that the top one percent of earners pay 99 percent of the taxes in the U.S., Fox & Friends co-host Steve Doocy issued a correction and informed the show’s viewers that the richest Americans don’t pay nearly that much.

While railing against socialism and the Democratic Party on Thursday morning, former Republican congressional candidate Maria Elvira Salazar sounded the alarm on “handouts,” claiming that redistribution turns poorer citizens into “parasites of society.”

Taking aim at Medicare for All, Salazar said she’s not opposed to universal access to health care but argued that the U.S. cannot provide for it without taking away the incentives for rich people to “produce wealth.”

Read more at The Daily Beast.

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Hate Doing Taxes? Here’s How to Easily File Them — Without Even Leaving Home

Do you procrastinate on taxes until April 15 every year? Does the sight of a W-2 form make your eyes cross? Does pricy tax software make you want to run and hide?

C’mon, it doesn’t have to be that bad. Help is available at an affordable price, and you don’t even have to leave your home.

That’s what you’ll get from H&R Block, the biggest tax-preparation company in the world. Because they’ve been in business since 1955, you might think they’re stodgy and old-fashioned. Nope — they’re keeping up with the times, rolling out innovative new ways to make filing your taxes easy and affordable.

Tax Filing From Home

If your taxes are super simple, you can file for free from your phone, tablet or computer with H&R Block Free. You can also file for free if you’re paying tuition or receiving student loans.

The Penny Hoarder writer Carson Kohler tried H&R Block Free last year and was pleasantly surprised by how easy and quick it was.

“I poured myself a giant cup of coffee and settled in for the afternoon,” she wrote. “Little did I know, this would be over in about 20 minutes.”

She downloaded the H&R Block app on her phone and created an account. That made it easy to switch over to her computer at any point without losing any of her information. She snapped a photo of her W-2 and answered a few quick questions. Once she reviewed her information, her part was basically done.

If your taxes are a bit more complicated, you might need to pay a small fee to file online. These options include:

  • Deluxe Online Tax Filing: This is similar to the free service, because you do it all online. If your taxes are a little more complicated — for example, if you own a home or have children — this is a better fit. It’s only $ 29.99 — not free, but really affordable for professional tax prep services.
  • Premium Online Tax Filing: Use this if you’re a freelancer or if you own stocks or other investments. It costs $ 49.99.
  • Self-Employed Online Tax Filing: Use this if you’re self-employed or a small business owner. It costs $ 79.99.

Right now, Penny Hoarders get a 35% discount on all of these.

Professional Tax Prep Can Be a Godsend

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Once upon a time, if you wanted to have your taxes done by a professional, you’d have to drive to a tax office in person. You’d sit there and make small talk while an accountant flipped through your documents, tapped on a calculator and figured out your deductions.

These days, you can skip the trip. With H&R Block Tax Pro Go, you’ll upload your documents online, and a tax professional will do everything for you and get back to you within five days. Prices start at $ 59 but can increase depending on how complicated your taxes are.

It can help to have a pro do your income taxes, because Uncle Sam keeps messing around with the tax codes. Some new rules are coming into play this tax season. For instance, the standard deduction is higher, but the personal exemption has been eliminated.

If you don’t know what that means, join the club. Maybe it’s time to call in a pro.

H&R Block’s services can help ensure you get the best refund possible at a price you can afford.

Mike Brassfield (mike@thepennyhoarder.com) is a senior writer at The Penny Hoarder. A homeowner with two kids and freelance income, he hasn’t done his own taxes in years.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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Franklin Attorney: $3 Million In Back Taxes Paid To IRS

(Photo by AP)

DETROIT (AP) — Aretha Franklin‘s estate has paid at least $ 3 million in back taxes to the IRS since her death in August, an attorney for the late Queen of Soul’s estate said Thursday.

The estate is being audited by the IRS, which filed a claim this month in a county probate court north of Detroit, David Bennett told The Associated Press.

Earlier Thursday, TMZ reported that legal documents it obtained showed the IRS claimed the singer owes more than $ 6.3 million in back taxes from 2012 to 2018 and $ 1.5 million in penalties.

“We have a tax attorney. All of her returns have been filed,” Bennett told the AP. “We have disputes with the IRS regarding what they claim was income. We claim its double-dipping income because they don’t understand how the business works.”

He added that Franklin had a lot of expenses whenever she toured.

“She had to pay for transportation, hotel rooms, backup singers, musicians. When she did that the IRS was questioning the returns she filed,” Bennett said. “We’re going through audits. Returns were filed as timely as we could get them filed.”

Franklin died of pancreatic cancer in August in her Detroit apartment. She was 76.

At the time of her death, Franklin owned a home in Oakland County’s Bloomfield Township. The IRS filed the claim this month in Oakland County Probate Court in Pontiac.

Documents filed in an Oakland County court after Franklin’s death did not mention the value of her estate , which could run into the tens of millions.

Franklin’s estate also has paid money to the state of Michigan and other jurisdictions “where she would have had some income,” Bennett said.

Franklin had been the target of a number of lawsuits by creditors during the late 1980s and 1990s.

In 2008, the singer said an attorney’s mistake caused her $ 700,000 mansion in Detroit to slip into foreclosure over $ 445 in 2005 taxes and late fees. The Detroit Free Press reported then that Franklin owed a total of $ 19,192 in back taxes on the property through 2007.

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Pepsi, Coke said to become a secret force behind ballot initiatives that push back on sugar taxes

Companies including Coca-Cola and Pepsi-Co are trying to stop municipalities from taxing sugary drinks, according to the New York Times. 
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New York Times: Kushner likely paid almost no federal income taxes for years

Jared Kushner, whose net worth is nearly $ 324 million, appears to have paid almost no income taxes from 2009 to 2016, The New York Times reported Saturday.


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