No one wants to owe the IRS more than they have to when tax season rolls around. While you may not be able to eliminate your tax burden, strategic planning throughout the year can set you up for maximizing deductions and credits to reduce what you owe—or even boost your tax refund.
Get ahead of the stressful, last-minute tax scramble by putting these pro tips into action. With a little diligent preparation, you can get ahead of the tax game and retain more of your hard-earned income.
Review Your Withholdings for Income Taxes
One of the best ways to get ahead on reducing your tax obligations is to check that your income tax withholding is optimized on your paychecks year-round.
Use the IRS Tax Withholding Estimator
The IRS makes this easy with an online Tax Withholding Estimator tool that can analyze your tax situation and recommend whether to adjust your withholdings. It takes into account details like if you have multiple jobs, changed your marital status, have dependents, itemize deductions, and other relevant factors.
The estimator will suggest if claiming additional allowances on a new W-4 could produce a bigger refund or help you avoid paying in. Tweaking your withholdings early in the year lets you spread tax savings over each remaining paycheck instead of waiting on one lump sum refund the next year.
Max Out Retirement Account Contributions
Funneling more money into pre-tax retirement accounts can directly reduce your taxable income each year. The IRS lets you contribute up to annual limits for 401(k)s, IRAs, Roth IRAs, and more ― so max these out to maximize deductions.
Lower Taxable Income = Lower Taxes
The less taxable income you have, the lower tax rate you fall into. And less income taxed means more money you get to keep! Contributing the yearly maximum to retirement accounts can make a big dent in taxable income.
Plus: Enjoy Tax-Deferred Growth
With accounts like traditional 401(k)s and IRAs, you not only reduce current year taxes but benefit from greater investment growth over decades without paying taxes on gains so far.
Itemize Deductions Strategically
Itemizing deductions on your tax return instead of claiming the standard deduction can really boost eligible write-offs. Track strategically throughout the year to capture every deduction possible.
Bunch Medical Expenses
If you foresee hitting the threshold for deducting medical expenses for the year (7.5% of adjusted gross income), consider bunching elective procedures and appointments into one year instead of spreading over two. This can help maximize write-offs when itemizing.
Donate Items by Year-End
For charitable donations, gather receipts and donate more unwanted items by December 31 rather than dropping off random goods sporadically. Having the full list of qualified charities and dates handy makes itemizing easier.
Leverage Lesser-Known Tax Breaks
In addition to common credits like the Child Tax Credit and Earned Income Tax Credit, some more obscure tax deductions and credits could score you major savings:
Lifetime Learning Tax Credit
If you paid tuition and expenses yourself for higher education classes, you may receive up to $2,000 back for qualifying costs. Up to $10,000 in expenses can get a 20% credit after the first $2,000.
Health Savings Account Contributions
If enrolled in a high deductible health plan, contributing pre-tax dollars to an HSA account can both reduce current taxable income and let you withdraw for medical expenses tax-free any time.
Consult a Tax Pro to Apply Strategies
While no one wants to pay even more money during tax season, getting guidance from a certified tax accountant mississauga can help identify the best applications of the above strategies and others tailored to your unique financial situation.
Fine Tune Filing Position
Based on a holistic look at your income sources, assets, deductions, and obligations for the tax year, a pro can provide specific advice on how to file accurately while minimizing amount owed.
Getting proactive with income tax planning, retirement contributions, strategic deductions, and tax credit claims can all keep more money in your pocket. Consult the experts, apply these tips, and get ahead of the tax game!
