Most of us set out to do our taxes with two specific goals in mind: try to pay as little we can to the IRS and maybe -- if we're super lucky -- get a decent refund. Those are perfectly reasonable goals to aim for, but it's not necessarily easy to recall (or even know in the first place) how we should go about lowering that tax bill.
We're here to remind you. From deductions to retirement plans, tips to tuition -- there are strategies for nearly every taxpayer to take advantage of some tax relief. Sometimes we just need a little help deciding what strategy to take -- which is where we'll start. Should you go ahead and spend the time itemizing your deductions, or should you just go for the standard deduction and hope it was worth the time it took?
10: Itemize ...
There's no more important tax decision than deciding whether to itemize. (Well, deciding to file at all is pretty important. But don't get in the habit of thinking you have much choice in that.) Here's the deal: The government gives you two options. One is the standard deduction, which changes depending on your filing status. (In 2014, it's $6,200 if you're filing as a single person and $12,400 for those married filing jointly.)
Seems appealing, right? It can be. But don't discount how important it is to make sure that you're not lowering your tax bill by itemizing all your deductions. You can write off all sorts of things -- from (some) medical expenses to charitable donations. Most worthwhile is your mortgage interest. You can write off the entire cost of your mortgage payments that go to interest, and that can be a large amount of money -- perhaps more than the standard deduction.
9: ... Or Don't
OK, remember what we just said about how you should totally itemize? Forget it. Don't.
Or more specifically, don't assume that all your little deductions are going to be worthwhile to take. As we alluded earlier, not every itemized deduction is worth your while. Consider the medical expenses deduction: If you're thinking you can just write off the cost of all the medical bills you paid this year, think again.
The actual rule? You can deduct medical expenses that exceed 10 percent of your adjusted gross income. So, let's say that you have $10,000 in medical expenses, and your adjusted gross income is $50,000. You can only write off $5,000 of those expenses, because the other $5,000 is under that 10 percent limit.
So, do be sure you're being smart about taking or not taking that deduction, because you might find yourself making your taxes higher than they ought to be.
8: Check Your Withholding
Some solutions to lowering your taxes are amazing tricks. Some are options that work well for some, but don't have nearly the same effect for others. But some solutions for making those taxes go south are as straightforward as they come. Case in point: lower your taxes at filing time by paying enough taxes throughout the year.
Here's why it makes sense: If you're getting walloped with a giant tax bill every April, chances are that you or your employer are not withholding enough from your account. Luckily, there are a few different ways to address that problem.
One of them is to simply request more withholding from your paycheck. That's easy enough: Just fill out an amended W-4 with your employer. If you're earning money from freelance work or have some other income that's affecting your taxes, you really should consider making estimated payments for your taxes. In fact, you might even be obligated to. While it won't lower your tax bill, it will help you avoid paying a huge bill at the end of the year.
7: Feed Your Retirement Plan
A lot of people consider using a retirement plan to help lower their taxes. And it might sound totally nuts. After all, why would putting money in some retirement account save you money? It's still sitting in a fund, after all, waiting for the government to grab a piece.
Not quite. Some retirement plans really do provide some big tax breaks. One option is a 401(k). You can put in a whopping $17,500 into your 401(k) each year ($23,000 if you are 50 or older). And here's the kicker: That income doesn't count as taxable income. In other words, you can pretty much delete up to $17,500 from your income [source: Block].
But beware: Nothing is free. Because you're not getting taxed when you contribute to your 401(k), you are going to get taxed when you distribute the funds. When your 401(k) starts paying out, you're going to have to treat any income you receive from it as taxable. Just remember not all retirement plans are made alike: IRAs and Roth IRAs work a little differently, and some contributions are taxable.
6: Check Out Section 179
There's nothing like buying something really, really expensive to lower that tax bill! While it might technically save you some taxes, it's pretty much a horrible financial plan to buy a $25,000 car just because you can write it off.
But here's the thing: If you have to buy a car -- say, for your business -- it can come in really handy to write the whole thing off the year you buy it. Usually you'd have to depreciate it, meaning that you can write a portion of it off for every year you own or use it. That's cool too, since you get a small deduction for many years. But Section 179 works a little differently.
Not anybody can use it. You need to be either self-employed or own a business to take it. But it basically says that any equipment you buy (up to $25,000 in 2014) can be entirely written off the year you bought it [source: Ebeling]. Just check out the specific rules to make sure you qualify.