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Tips to Save Money on Debt Let’s Clear Your Tax Debt! Tax season is close! Uncle Sam’s knocking at the door… Stressed? No worries. We’re here. If you’ve settled down to figure out what you owe Uncle Sam, take a load off your mind! Let us help you to prepare your taxes without breaking out in hives.
“Save the Tax day (April 15th) to your calendar first and start planning for your payment in advance. If you fail to file your tax returns within the filing deadline date, you may have to pay a heavy penalty. So better late than never. “
Step 1: Gather your Tax Records
Before you start filing your taxes, gather all copies of your tax documents and returns for at least three years to start calculating your tax liability. Here’s a quick list of documents that you will require to get started:
1. W-2s 2. 1099s 3. 1099-G
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4. 1040 – U.S. Individual Income Tax Return 5. Previous year’s tax return 6. Mortgage Interest Statement 7. Investment Income Statements
Whether you are preparing your tax return on your own or seeing a tax professional, make sure you compare your current year’s tax return to your previous ones and verify all the taxes deducted from your income. If you are due for a refund or owe a tax debt for any previous year, use the IRS online tool to find out your payoff amount and check for your payments made in the last 18 months.
Step 2: Deductions and Exemptions
While filing your taxes, itemized or standard deductions can go a long way in reducing your taxable income. They can lower the amount of taxes you owe, which means your tax bill curtails and you save big bucks from Uncle Sam. You can opt for either one. The standard deduction amount for 2019 tax year for single filers is $12,200 and $24,400 for married couples
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filing jointly. However, in 2020, it is raised to $12,400 for single taxpayers and $24,800 for married filers. Most of the U.S taxpayers take the standard deduction while filing tax returns. But then, it’s better off itemizing if you can spend little time in gathering some of your old receipts for deductible expenses. Itemized deduction is a great option for taxpayers with highincome. If you plan to choose itemized deductions for filing, look for the back-up of receipts you have for:
1. Charitable Donations 2. Medical Expenses 3. Health Insurance Premiums 4. Home Mortgage Interest and Points 5. Childcare Costs 6. Education Costs Deductible taxes 7. Casualty and theft losses 8. Business travel expenses 9. Bank and credit card statements 10. Miscellaneous tax deductions (unreimbursed business expenses, moving expenses etc.)
Step 3: Tax Credits
Tax credits are way favorable than tax deductions and exemptions as they actually reduce the overall tax liability i.e. the amount of taxes you owe, and not just the taxable income. It is a dollar-for-dollar reduction of your tax bill. That means, if you owe a maximum of $100 in taxes
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but are eligible for $100 tax credit, your net liability stands zero. Tax credits primarily benefit the low and mid-income earning taxpayers.
Tax credits are of two types: refundable and non-refundable. You get a refund in a refundable tax credit even if it is more than the amount you owe which means that if you owe $350 in taxes but qualify for a $1,000 credit, you’ll get a refund for $650. However, in non-refundable tax credit, you get a refund only up to the amount you owe. Most tax credits aren’t refundable. Here’s a list of tax credits for individuals and businesses.
1. Child Tax Credit 2. Child and Dependent Care Credit 3. Earned Income Tax Credit 4. Adoption Credit
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5. Lifetime Learning Credit 6. American Opportunity Credit 7. Saver’s Credit 8. Residential Energy Tax Credit 9. Plug-in Electric-Drive Motor Vehicle Credit
Read detailed information at Tips to Save Money on Debt
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