7 Seven Ways to Save on Taxes
Want to save money on your federal income taxes? Then start tracking the items below right now. That way you won't need to scramble when April 15th rolls around next year.
1. Individual Retirement Account (IRA)
Don't wait until the federal tax filing deadline to open (or add to) an IRA. Make your move as soon as possible. Besides gaining a deduction next April 15th, you'll boost your potential earnings. Plus, you may find that by spreading out your contributions, you can more easily afford to make your eligible maximum. And remember: Workers age 50 and over can make extra “catch-up” contributions.
2. College tuition
If you pay college tuition for yourself, your spouse or a dependent, you may be eligible for a tax deduction or a tax credit. Need more deductions? Consider making a January tuition payment in December.
3. Student loans
Are you paying off a student loan? Then you may qualify for a deduction on the interest you pay. Early in the year, your lender should provide a statement detailing the interest you paid the previous year.
4. Charitable giving
Uncle Sam wants hard evidence of your charitable deductions, so be sure to get a receipt for both cash and items you donate. If your donation entitles you to a gift — say you get a tote bag for contributing to your public radio station — consider declining the gift so you can claim the entire donation, not just the amount above the value of the gift. You should also keep a diary of miles you drove your car for charitable purposes, such as delivering meals. That entitles you to a mileage deduction.
5. Saver's credit
If you meet certain income limits, you may be eligible for a tax credit on contributions to a retirement plan or IRA. The details vary from year to year because the benefit is adjusted for inflation, so check the IRS website or ask your tax preparer for details.
6. Child care
You may be able to claim a credit for child-care expenses, even if you participate in a Flexible Spending Account at work that uses pre-tax money to pay such expenses. If you have out-of-pocket costs that exceed your spending plan's amount, remember to check into this credit.
7. State income taxes
When it comes time to file your federal taxes, you'll probably remember to deduct the state income taxes taken from your paycheck. But be sure to make a note if you make any extra payments this year for last year's state income taxes. That's deductible too.
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