Understanding taxes can be tricky. Once you’ve got your head around it, you’ve probably started wondering how you can pay less – legally, of course.
Making tax savings can increase the amount you take home, giving your paycheck a significant boost. Below, we give you some tax tips and tricks to help you make some savings. And don’t worry – most of this advice is easy to put into play.
Tax saving tips for salaried employees
While you may have to discuss some of the below with your employer, these tax advice tips can help you save money over the course of the year:
- W-4 – a W-4 form lets your employer know how much tax to withhold from your pay. You can change this if circumstances change; for example, if you get a significant tax bill, you can raise your withholding to ensure it doesn’t happen again the next year.
- Flexible Savings Account (FSA) – lower your bill by transferring up to $2,750 into an FSA. While you’ll have to use this money for things like medical and dental expenses, it will be tax-free and can often be used for items such as bandages, breast pumps and acupuncture.
- Ask for a deferred income – you can request to defer part of your income into the following year. This may sound odd, but it’s particularly beneficial for those who have commission-based income. If you’re expecting a high amount of commission for one year but a lower amount for the next, for example, you could defer payment into the next year to lower your taxable income.
Tax saving tips for self employed individuals
Sticking to a tight budget is a typical part of being self-employed, or owning your own small business. Sometimes income can be irregular and not fixed, so it pays to plan accordingly. Here are our top tax saving tips for the self-employed to help you cut back on costs:
- Invest in tax software – according to the IRS, 21% of taxes filed by paper have errors, dropping to only 1% when tax software is used. You don’t want to end up overpaying on taxes due to error or missed deductions, nor do you want to lose track.
- Don’t forget carryover tax deductions – if not used entirely over the year, some deductions can be carried over into the next. This includes home office deductions, large donations to charity and capital losses.
- Pay for your retirement early – if you’re self-employed, any extra money that you put towards your retirement fund isn’t taxable until it’s withdrawn. A single taxpayer under 50 can put up to $5,500 towards a traditional account annually, while those over 50 have an allowance of $6,500.
Tax saving tips for individuals
Whether none of the above applies to you or you simply want some more tax saving advice, utilize these tax savings tips to save more money annually:
- Earned Income Tax Credit –those who earn less than $57,000 may be eligible to an Earned Income Tax Credit (EITC). This is a tax credit of up to $7,000, although the exact amount varies depending on your exact income, marital status and if you have any co-dependants.
- Medical expenses – always keep track of your medical receipts, as you can deduct any costs that are 7.5% or more than your annual adjusted gross income. This includes dental care.
- Go green – being kind to the environment has more than one benefit, and there is a tax credit available for those who invest in and install in alternative energy on their property. This includes the likes of solar water heaters, geothermal pumps and wind turbines. The tax credit equates to 22% of what you spent, including labour costs – although this is due to drop to 10% in 2022.
What are examples of taxes you have to pay?
The type of taxes you must pay depends on your financial and employment status, among other things. Some examples of taxes you may have to pay include income tax, sales tax, payroll tax and property tax.
How do I pay my taxes?
There are a multitude of ways you can pay your taxes: via same-day wire, the Electronic Federal Tax Payment System, Electronic Funds Withdrawal, check or money order and cash.
Can I refuse to pay federal income tax?
No. It is illegal to deliberately avoid or refuse to pay your annual taxes; this is a criminal offence known as tax evasion, which can result in prison time. If you’re struggling to pay your taxes, get in touch with the IRS for advice.