Said a wise man once, “In life, there is nothing certain but death and taxes.” While death occurs only once, taxes are a recurring chore that we have to deal with almost our entire adult lives. That shiny paycheck may not look as appealing after taxes are deducted, and the amount of disposable income one has is also significantly reduced after taxes. Here are a few ways that can help you save on the amount of money you pay in taxes each year.
Pay All Delinquent Taxes
Before you can start saving on taxes, it’s important to first pay off all taxes that you owe. This step is crucial as it gets collection agencies off your back, allowing you to start anew and reduce the amount of taxes you actually have to pay. There are fresh start and/or forgiveness programs that may apply to you. These programs help those who owe a great deal in tax payments by resolving debts at a reasonable rate.
Put Money in a Self-Employed Retirement Account
For those self-employed business owners, putting a portion of your earnings into an individual 401(k) or a Simplified Employee Pensions (SEPs) is a great way to save on taxes while growing a nest egg. Money put into an individual 401(k) or a SEP is tax-deductible, so you save more money this way.
Keep All Documents Handy
It is important to have a good record of your income and expenditure, even for tax purposes. Certain expenditures may be able to be written off, and some, such as donations, are tax-free. Keep a record of your business expenditures, tax deductions and others, so that when April rolls round you will be able to have a good idea of what exactly you have to pay for and what you do not have to.
File a New W-4
Life is ever-changing. Most of us get married, have kids, send them off to college and then see them leaving the nest eventually. For your taxes, this means a whole lot of changes. As a single, you are obliged to pay a different amount of taxes as compared to after getting married. After kids, that number changes again and again. Filing a new W-4 ensures that the IRS is updated with your tax information, and that you are taxed correctly for your income bracket and dependent situation.
Consult a Tax Expert
When in doubt, consulting a trained tax lawyer/accountant is always a safe bet. Tax attorneys who are trained to handle taxes know all the tricks of the trade, and will definitely be able to save you money in the long run. Some may shy away from the cost needed to hire a lawyer or accountant, but a few years down the road it is a move that will actually help you to shave hundreds, if not thousands off your tax bill. You may be eligible for tax reliefs that you never even knew about, and this is where having your documents on hand and well-organized will be very useful.