7 Tax Moves to Lower Your Taxes This Year (2024)

This post is by our regular contributor, Erin.

With the new year comes the oh-so-fun countdown to April 15th for those of us in the U.S.

That means most of us are preparing to file our taxes in the coming months (or weeks).

Another (very wise) blogger recently mentioned to me that learning how to reduce your tax burden is one ofthe best ways you can save more money.

As many of you know, we’re big fans of saving in a practical way, and learning what moves to make to lower your taxes definitely fits in with that.

If you’re looking to minimize your tax burden, read on for 7 ways you can do it.

1) Take Advantage of Your 401(k)

This is at the top of the list because it’s a greatoption available to the majority of people. If you have access to a 401(k) or 403(b) at work, try your best to max out your contributions to reap the most benefits.

Why? Contributions made to these accounts directly reduce your taxable income. As a bonus, if you’re maxing your plan out and your employer offers matching contributions, then you’re getting free money!

You can contribute up to a maximum of $18,000 in 2016.

2) Max Out Your Traditional IRA

Traditional is the key word here. Traditional IRAs function similarly to401(k)s, as your contributions are tax deductible. Have youmanaged to max out your 401(k)? Then by all means, take advantage of your IRA if you have one!

If you don’t, you can open one right now as the deadline to contribute for the prior year is this April. For example, when I opened my IRA in February, I had the option of making contributions for the current year, or the past year.

In 2016, the contribution limit is $5,500.

Note that this isnot the case for Roth IRAs! You won’t get any tax benefitsright now for maxing that out. That’s because contributions are made with after-tax dollars.

3) Max Out Your Health Savings Account (HSA)

If you have a high deductible health insurance plan, you’re eligible for an HSA. DC wrote a great post on how you can maximize an HSAthat you should check out if you have one. In short, your contributionsreduce your taxable income.

You can contribute up to $3,350 as an individual, or $6,750 as a family in 2016.

Alternatively, if you have a Flexible Spending Plan (FSA), you can still save money on your taxes. The amount isn’t rolled over year to year as with an HSA, but contributions to this account also reduce your taxable income.

4) Keep Records of Donations/Charitable Giving

Most people are aware that their donations or charitable contributions are tax deductible. The hard part is actually keeping track of them.

Whenever you make a donation, ask for a receipt, and keep a record of it. Grab a folder and store the information in there, or take a picture of it with your phone.

Keep in mind that larger donations may require a written letter from the organization you donated to, and if you donate cash, make sure you have proof (such as a detailed bank statement) in case you’re ever audited.

Additionally, research the causes and organizations you’re donating to ahead of time to ensure they’re legitimate! You shouldn’t be making donations solely for the purpose of a tax deduction, but you don’t want to plan on taking it only to find you can’t. For example, donating to a political party doesn’t count.

5) Know What Tax Credits You’re Eligible For

Credits directly reduce the amount of taxes you owe, which makes them a must to look into. Check to see if you’re eligible for any of these popular credits:

• Earned Income Tax Credit: Low to moderate income workers typically qualify for this.

• American Opportunity Tax Credit: Are you still in your first four years of college? Then you may be eligible for this credit if you paid for tuition or other qualifying education expenses.

• Savers Tax Credit: Have you made contributions to an eligible retirement fund? You may qualify for this credit.

• Child and Dependent Care Credit: Did you pay someone to babysit your child, or did you pay a professional caregiver totake care of your spouse or another dependent so that you could work? If so, see if you qualify.

6) Side Hustle? Self-Employed? Track Your Business Expenses

You don’t have to be an “official business owner” of any sort to deduct certain expenses as business expenses. That is to say, you can function as a sole proprietor or LLCto take advantage of all the deductions.

Sure, corporations and LLCs may have their own advantages, but the point is, you can claim business expenses even if you’re self-employed part-time.

So if you use your second bedroom exclusively as an office, be sure to tell your tax professional so you can deduct the space (and utilities) accordingly.

Throughout the year, it’s super important to keep tabs on any purchases you make that help you run your business so you can deduct it.

Vehicle mileage, advertising, website expenses (such as hosting, domain registration, tech support, etc.),conferences,subscriptions, and educational material can all be classified as business expenses.

There are quite a few ways to take advantage, but I’ll leave that up to a tax professional to advise you on. =) By the way, did you know that’s a business expense you can deduct, too? From the IRS:

Tax preparation fees.You can deduct on Schedule C or C-EZ the cost of preparing that part of your tax return relating to your business as a sole proprietor or statutory employee. You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions.

7) Pay Attention to Big Changes

Do you have any big milestones coming up? Maybe you’re relocating for a job, having a baby, or getting married. Many of the “big events” in life can change your tax situation, and it’s worth preparing as much as you can beforehand.

• Relocating: You can deduct mileage, parking, tolls, and gas if you’re relocating for a job that’s at least 50 miles away from your old job/home.

• Marriage: Getting married changesa lot when it comes to your taxes, such as being eligible for additional deductions, as well as your filing status.

• Divorce: Similarly, getting a divorce will affect your filing status (if you are, in the eyes of the law, actually divorced on the last day of the year). Your former spouse may file a joint return if it’s not finalized, which you can object to.Choose“married filing separately” to prevent this from happening.

• Becoming a homeowner: You get to deduct the interest you pay on your mortgage, among other things.

• New baby: Kids may cost a lot, but becoming a parent, or adding another dependent to the picture, can save you a lot of money when it comes to the deductions and credits you’re eligible for.

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Taxes can be complicated, and very few of us look forward to filing time. However, knowing how to lower your taxes is valuable information.We just scratched the surface, but hopefully this provides a good baseline for you.

If you are looking for tax software to help you do your taxes yourself this year, we recommend TurboTax.

Do you file your taxes yourself, or pay someone to do it? What deductions and credits have you taken advantage of? Have you ever been audited?