Tips on Managing Your Taxes The Best Way In 2020
Most people are always happy to forget about the word TAXES once their returns are sent to the IRS. But taxes are not a once a year event. To be able to fully profit from all the tax credits and tax deductions that are accessible to you, it’s vital to stay apprised of them. This, in turn, will enable you to make great tax decisions wisely.
The following are some of the tips that will help you manage your taxes wisely all year round:
Profit from Tax Deductions
Tax deductions permit to remove certain items from your income before you calculate the tax that you owe. For example:
- Some homeowners can subtract their mortgage interest before calculating their taxes;
- Anybody can remove unrefunded health care payments above a certain percentage of his or her income;
- EITC (Earned Income Tax Credit) drastically reduces the amount of tax Owed by low-income earners;
- If as an adult, you contribute to either an individual retirement or company retirement plan, you qualify for the saver’s credit. Your AGI determines the amount of credit, which must be below $64,000 if you are married and below $32,000 if you are single; and
- Parents with children who are 17 and younger qualify for the child tax credit. This can help parents save up to $2000 on each child.
These are just some of the tax reductions available in 2020, and they are many more of them.
Take Maximum Advantage of Retirement Savings
Making contributions to retirement accounts that are tax-deferred is a productive means by which current taxes can be reduced. Your financial predicament can be helped by using this process in two ways.
- By curtailing your current income, subject to federal taxes, and in a lot of cases state income taxes.
- Helping you realize greater retirement safety in the long run.
Taxes are due once you have made a withdrawal. If a withdrawal is made before you turn 59½, you may be liable for an additional 10% federal tax.
You are going to make the most of the opportunities brought about by your tax-deferred retirement savings contribution. It will ponder increasing your contribution yearly. The $25 to $50 directed towards your retirement plan will not be missed, and it can make a hell of a difference over time.
- You must be 18 years and older;
- Not be a full-time student; and
- Not be claimed as a dependent on someone else’s return.
The credit amount is 50%, 20%, or 10% of your retirement savings plan.
$2000 is the maximum contribution that may qualify for this credit, which makes $1000 the maximum credit.
For married couples filing jointly, its $4000 and $2000 respectively.
Make a Habit of Building Profitable Tax Credits
If a qualification is not an issue, tax credits can decrease the amount you owe in taxes with a dollar for dollar credit. Tax credits are abundant in number for those who qualify, below are some of the most famous tax credits out there:
Residential energy-efficient property credit
This tax credit applies to people who own solar electric properties, solar water heaters, small wind turbines, geothermal heat pumps, and fuel cell properties. Fuel cell properties are the only ones that are subject to limitation. Generally, properties put in service after December 31, 2021, do not qualify for this credit.
Child-Care Tax Credit
This is a credit that gives substantial breaks to the working-class parents who spend money taking care of children below the age of 13.
The kind of payments that qualify for this credit includes preschool, child-care provider, before and/or after school care, nanny, babysitter, and a day camp. One of your other children cannot be paid as a sitter in this case, unless he or she is no longer one of your dependents.
The amount of credit is generally based on the number of children receiving care, the cost of said care, and your income. Up to $3000 can be claimed for one child while a maximum of $6000 can be claimed for two or more children.
The more you make, the lower your credit, there is no maximum income threshold. This is an ongoing tax credit with no expiring date in the works.
American Opportunity Credit
This presents a tax break of up to $2500 per student for the first four years of higher institution studies. It is available to people with a modified gross income of a maximum of $80,000 and $160,000 for married couples filing jointly.
A refund of up to 40% is due to anyone whose credit is greater than their income tax liability. Nevertheless, the American opportunity credit doesn’t allow people to take both the tuition and fees deductions. You will have to figure out which of them gives you back more money if you happen to qualify both, this can differ depending on each person.
Your retirement plan is needed to be apprised of your contributions to your account, but there is also a necessity to keep impeccable records of other items that will support credits and deductions during tax time.
Receipts of payments such as medical bills, child care, energy-related payments, and charity donations should be stored adequately. Scanning your receipts is a great way to protect them and the IRS accepts scanned receipts; just make sure they are legible.
In the United States, stress levels are usually heightened with the approach of Tax season. What you have read above are some of the ways you can escape being in the same situation as others. You may also need a tax expert/accountant to help you understand and navigate your taxes with ease. These professionals not only help you manage your taxes but also help in reducing the amount of tax you pay by putting some of that money back in your pocket.