How to Minimize the Different Forms of Tax liability
By: Arun | Posted: 23rd March 2010
Many people get the tax time jitters... You wait anxiously for your accountant to tell you the good news or the bad news. But it doesn't always have to be like this. You can help yourself by minimizing how much money you could owe at the next tax year. Know your tax returns can go a long way to help you reduce those tax bills. By being able to assess your own tax situation, you can easily avoid trouble with the IRS. And here are some tips to help you get started:
Fill your W-4 Form accurately
The W-4 form is something that your employer gives when you first get hired. This form is used to determine your tax exemptions. By law you can claim as much as exemptions that's due to you. This means you can claim an exemption for yourself and one for each dependent. W-4 forms are not set down in stone; they can be changes as many times in a year as your circumstances change. However if you wish to get better refunds from IRS, some married people fill in their status as single, so they do not get exceptions.
Itemize as much as you can
When you're filling in your Tax Forms there are two choices you can use: standard deduction or itemize. Well the logical way of choosing is to see if your deductions are more than the standard deduction. If this is the case then you should itemize. But itemizing is not easy; you will need to read the stipulations for each category carefully to see if you meet the requirements. You might be pleasantly surprise about what you can deduct, for example, money spent on uniforms for work can be deducted; mileage for doctor visits for a relative you take care of can be deducted; as well as co-pays for medicine and doctor visits.
When possible, use credits
Credits are better than deductions, and that's a simple fact. Deductions will reduce your taxable income, but credits will reduce the amount of taxes you owe at the end of year. For example, your salary is $50,000, and you owe the government $5,000 in taxes. If you make charitable contributions, that gives you a deduction of $2,000. Now your taxable income is $48,000 and your tax is now $4,800.
Contribute to and employer retirement plan
Any money placed in a retirement account is tax-deferred. This means taxes are only paid on the money when it is withdrawn after retirement. Hence pensions are a deduction. You can contribute as much as you're comfortable to reduce your tax bill. Do you always end up owing money to the IRS at the end of each tax year? You can try the ideas above to cut that tax back. Take a little time to plan for your taxes can lead to a refund rather than a bill.
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Tags: bad news, simple fact, exceptions, two choices, irs, mileage, tax returns, accountant, taxable income, jitters, tax forms, tax situation, tax time, doctor visits, tax bills, standard deduction, uniforms, stipulations, charitable contributions, tax exemptions