If you are serious about saving on taxes you need to know, what the common tax mistakes people make are and ensure that you avoid them. What you can do is:
The easiest and most honest way to save on taxes is to plan your taxes and devise a fool proof method of keeping track of receipts, investments, property, business expenses, charitable donations, medical expenses, and so on. By being organized you will not miss any aspect that will allow a tax waiver.
According to tax gurus there are 3 ways in which you can pay lower taxes:
1. Create a solid retirement plan. Since taxes depend on your AGI or adjusted gross income and is a measure of your finances, you must reduce your AGI. The easiest way to do this is to contribute to a 401K or similar retirement plans. Money saved in a retirement plan is deducted from income and so lowers the AGI and taxes. Another way of reducing AGI is to make adjustments by including payments to IRA, student loan interest, alimony payments and so on. Refer to the list provided by the IRS on Form 1040: page 1.
2. Escalate your tax deductions. Taxable income is the money left over after reduction of AGI and exemptions. If you itemize your deductions instead of just taking a standard deduction you will benefit. According to tax advisors you must use which ever is a higher, itemized deduction or standard. Ensure that you take into account mortgage interest, home equity loan interest, state taxes, membership fees, and charitable donations.
3. Use tax credits to reduce taxes. Tax credits are retirement funds, college expenses, adoption of children, and so on. Education related credits are of two main kinds: The Hope Credit for the first two years of college and the Lifetime Learning Credit for anyone taking college classes.
4. Avoid paying additional taxes by resisting early withdrawal of funds from the IRA or 401 K retirement plans. Withdrawal results in an increase of taxable income.
5. Find out if you are eligible for Earned Income Credit.
6. Get a larger refund on taxes by increasing the withholding. Log on to the IRS website and learn about the W-4.
Taxes are not about blindly filling forms it is basically intelligent planning and using strategies that will benefit you in the long run. So think investments, buying property, and so on. The World Wide Web has incredible amounts of information and tips that will help you pay lower taxes.
Barry Allen is a freelance writer for Online Tax Firm, the premier website to find tax, return tax, tax software, free tax filing, sales tax, services tax,income tax, property tax and many more.