The tax code is complex, and filing taxes can be a pain. But if you take a few simple steps, you can minimize your tax burden without breaking the bank. International and US tax preparer Derren Joseph is the perfect solution for all your tax needs.
WalletHub has put together a list of expert tips and strategies you can use to streamline your taxes. These tips are sure to help you pay less and avoid common mistakes this year.
1. Take Advantage of Tax Deductions
Tax deductions and tax credits can be huge money-savers if you know what they are, how to take advantage of them and when to pursue them.
Deductions lower your taxable income and reduce your tax bill, while credits give you a refund when you don’t owe any taxes at all. While they’re often more valuable to people who earn more, both can save you a significant amount of cash.
To take advantage of deductions, create a system to track your expenses and make sure you claim the ones that are eligible. This can be done using a spreadsheet, a digital expense-tracking app or even an old-fashioned pen and paper.
If you own a business, you can deduct the cost of certain things that go into running your company, including advertising, office supplies, insurance and legal fees. Other common business deductions include travel, car expenses, training and education. You can also deduct business casualty losses, such as the damage caused by a fire.
2. Look for Tax Credits
Whether you’re in the middle of tax season or are already well into next year’s filing, there are several expert tips and strategies to keep in mind. One of the most important is to look for tax credits and deductions.
Tax credits, which are usually refundable, reduce a company’s tax liability by the amount of money it spends on a specific activity. For example, a company may spend $5,000 on new equipment and save $500 in taxes when it claims a credit for that amount.
Another common type of tax credit is for research and development. This credit can help companies fund their research, which in turn helps the economy by increasing production and employment.
There are also a number of tax credits for job creation and investment, which often set a certain dollar figure a company can claim for each qualified job created. These are often the most lucrative because they’re generally refundable. But they’re also among the most difficult to qualify for.
3. Don’t Forget About Your Self-Employment Taxes
As a self-employed person, you have to keep track of your own taxes. This includes both your income tax and a special self-employment tax, which is also called FICA.
Unlike employees, who receive a W-2 from their employers to report their wages, you must calculate your own income and make payments on your own using the payroll process. This process can be complicated, especially for new small business owners who aren’t sure how much they will earn.
You’ll also need to keep a record of all your business expenses. This can include things like computer equipment, printer ink, and the cost of renting office space. You should be able to deduct most of these costs if they’re “ordinary and necessary” for your work.
4. Don’t Forget About Your Retirement Accounts
Keeping track of your retirement accounts is an important part of making sure you’re saving enough for retirement. The best way to keep track is to set up an automatic transfer between your checking account and your retirement accounts every month, so that funds you earmark for your future go straight into your investment portfolio.
The type of retirement account you choose also plays a role in your tax situation. Some retirement accounts, such as IRAs, don’t charge ordinary income taxes until you withdraw your savings. This can be helpful if you expect your tax rate to be higher in retirement than it is today.
Another option to consider is to open a self-employed IRA, which offers increased contribution limits. This is a good idea for small businesses that don’t have access to workplace plans, such as 401(k)s.