A huge tax bill can be a financial burden. However, you can lower the tax liabilities. Learn how to reduce your tax bill here.
Come 2021 tax season, you will be required to file your tax returns with the IRS. You must file your taxes on time to avoid heavy penalties. Also, filing your taxes on time can allow you to get your tax refund faster. The big question is not about filing your taxes; it is about how you can reduce your tax bill. To help you reduce your tax liabilities, here are 4 secrets you need to know.
First, work on deductions and exemptions you qualify for
Depending on your tax filing situation, you can qualify for certain deductions that can help lower your taxable income. Some of the deductions you need to focus on include the student loan interest deduction, mortgage interest deduction, IRA contribution deductions, medical expenses deductions, Home office deductions, among many others. You just need to identify the deductions you are entitled to, and include them in your tax returns. That way, you will lower your taxable income, and that is likely to lower your taxes liabilities.
Claim tax credits you qualify for
The IRS knows paying taxes can be a huge financial burden to taxpayers. For that reason, the agency offers tax credits that lower your tax bill dollar for dollar. Some of the tax credits you can claim, if you qualify, include the American opportunity tax credit, child tax credit, child and dependent care tax credit, earned income tax credit, residential energy credit, among others. You can use 2020 child tax credit calculator to know how much child tax credit you can get come tax season. Also, use online tax calculator to calculate an estimate of tax credits you can claim when filing your tax returns. When you claim all the tax credits you are eligible for, you will significantly lower your tax liabilities, and you can even get a tax refund from the IRS.
Keep good records
One of the big mistakes you can make when filing taxes is not to have records and receipts. If you don’t have good records, there are high chances that you will miss out on tax credits and deductions you qualify for. Keep records of your business expenses, deductible entertainment expenses, mileage records, charitable gifts, and more. That way, you will have an easy time when filing your tax returns and you won’t miss out on the deductions and credits that will lower you tax bill.
Contribute to the IRA
This is a smart way of lowering your tax liabilities. Besides that, you will be able to accumulate retirement assets, and that will ensure you have peace of mind once you retire. Just contribute to your tax-deferred retirement account through 401(k) plans,or others, and you will reduce your tax bill.
Lowering your tax liabilities is not a simple thing. You need to contribute to the IRA, claim all deductions and credits you qualify for. Remember to use 2020 child tax credit calculator and tax calculator, to calculate your child tax credit, among other tax credits, as well as estimated tax. That way, you will have a clear picture of your tax liabilities.