4 Ways to Owe Less on Taxes (or Even Get a Refund) Next Year
April 15 isn’t a favorite day on the calendar for people who owe taxes. If you’re in that group, there may be ways to lower your tax bill for next year. Whether it’s increasing your refund or simply paying less in taxes, these four Tax Day hacks could pay off.
1. Change Your Withholding
One simple way to change your tax situation next year is to increase the amount of withholding on your Form W-4 and submit the updated information to your employer. Withholding is the amount the government deducts from your gross earnings each pay period. Those deductions are held back to keep you from owing a huge tax bill at the end of the year (plus potential penalties and interest).
Just keep in mind that a small owed balance can be a good thing. Withholding too much (and getting a big tax refund) may sound good, but you’re basically letting the government use your money interest-free until refund time. Could you put your money to better use if you were receiving it throughout the year? The IRS has a Withholding Calculator that can help you decide.
2. Retirement Account Contributions
According to U.S. News & World Report, one of the top tax-reduction tools is contributing to a retirement fund. Most contributions (except to the Roth individual retirement account) let you put a certain amount of your income into a retirement account before it’s been taxed. These funds can sit in your account and grow tax-free until you reach retirement age. Start early enough, and you’ll have enough for a comfortable retirement when the time comes.
3. Employer-Sponsored Savings
Contributions you make to a 401(k) account go in before they’re taxed. While you won’t get a deduction on those contributions, they won’t be part of your taxable income for the current year, according to Money. Many employers match employee contributions up to a certain percentage. That’s “free money” – so be sure to take advantage of it if you can.
4. Charitable Donations
Donating to good causes can do more than just make you feel good. It has tax benefits, too. Did you donate United Way through payroll deductions or donate clothes to a local homeless shelter? These kinds of donations can be easily forgotten or overlooked—but they add up! Whether it’s the cash you gave to the Salvation Army or the $20 you placed in the collection box at church, generosity can pay off. Keep track of what you donate throughout the year (be sure to request receipts for your records) and include that amount in your tax return.
Whatever steps you decide to take, it’s still early enough in the year to influence next year’s tax bill for the better.
The information contained herein is general in nature and based on authorities that are subject to change. Xact guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Xact assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations.