Tax Day may be months away, but it’s never too early to learn how to save taxes. You don’t have to be a tax genius. Even small things like keeping receipts and taking lunch meetings can save you a nice buck or two. So sit back and relax, we’ve got a list of 81 ways to reduce taxes.
How to Save Taxes in 81 Easy Steps
1. Alert Your Broker About which Shares to Sell
While they’re doing that, you have more control over consequences in tax when you sell your stock. If you forget to specify which shares to sell, the first-in-first-out tax law will come into effect. Your oldest and possibly most profitable stocks will be sold.
2. Ask Your Boss for a Raise
If you got a surprisingly large tax refund, this might be because they’re taking too much tax from your paycheck. Talk to your employer about the possibility of a raise, and if they agree, file a W-4 form. This will make sure you get more money for the work you put in.
3. Avoid the Expensive Kiddie Tax
Minimize the amount you need to pay by putting money from your child’s investments into growth stocks or municipal bonds that are tax-free. These won’t be sold until they turn 19, or 24 in the case of full-time students.
4. Be Careful Not to Make Your Activity Look Like Just a Hobby
If the IRS thinks what you’re doing is just for fun, you’ll suffer some consequences. There are restrictions on deducting income expenses, and you can’t deduct losses either. Make your activity look as professional as you can by printing out business cards and opening separate bank accounts.
5. Be Careful Not to Wash Sale Your Assets
Don’t sell bonds, stocks, or mutual funds for a loss then attempt to buy back the same thing within 30 days. If you do this, you won’t be able to claim your loss on your tax return. This would be considered a wash, and the IRS doesn’t look too kindly on that.
6. Be Generous
Giving is just as good as receiving. All the cash you give away while you’re alive won’t be in your estate tax when you die. You can also give up to $14,000 to as many people as you want each year, without having to worry about the federal gift tax. If your dependent agrees to give more to one of the people you’ve gifted, they can receive $28,000 a year completely tax-free.
7. Be Plugged in the Rental Real Estate Scene
If you suffer losses while you’re active in rental activity, you can deduct up to $25,000 of said losses, but that’s only if your adjusted gross income is less than $100,000.
8. Be Smart When Choosing Your Business
Of course, you need to study what sort of field you want to venture in, but you also have to take into kind what’s the best form for your business. Maybe you want it to be a sole proprietorship, or a limited-liability company (LLC), or any other form of business. Whatever you decide will have an effect on the taxes you have to pay.
9. Buy Your First House with Your Roth IRA
The tax-free and penalty-free withdrawals your Roth IRA brings are great when you’re saving up for your first house. What’s more, if your account has been open for 5 years, you can take out up to $10,000 completely free of tax or penalty.
10. Choose the Proper Filing Status
Your filing status determines your standard deduction rate and your tax rate. If you’re married, you can either file with your spouse or file separately. If you’re a single parent, consider filing as head of household to get better deals on taxes.
11. Change to a Roth 401(k)
Transfer some of your money to a Roth 401(k) to protect against possible tax spikes and to diversify your taxable income. Remember though that unlike a regular 401(k), you don’t get a tax break when you put money into a Roth 401(k). Money coming out of your Roth 401(k) will be tax-free.
12. Communicate With Your Ex
If you ever go through a divorce, pay close attention to the tax basis. This is the value that determines gains or losses when a property is being sold. An asset may be worth significantly more or less depending on this value. While alimony is tax deductible, property settlement is not.
13. Congratulations, It’s a Tax Saving!
Kids are a godsend when it comes to cutting down your tax. Adding a dependency exemption will shave nearly $4,000 off your taxable income. You may qualify for child credit too, and that’s worth $1,000. To immediately increase the bacon you bring home to your family, add an extra withholding allowance to your W-4 form at work. This will cut tax withholding from your salary.
14. Coverdell Savings Accounts can Help Cover Private School Tuition
These accounts let parents and grandparents use tax-free money to pay private school tuition fees and other school-related costs. This means that everything from tutoring to books and supplies to transportation can be paid for using your Coverdell money. From their elementary to their high school days, you can contribute up to $2,000 to Coverdells. Although you don’t get a tax deduction, the money you put into a Coverdell account becomes tax-deferred, and can be taken out without taxes.
15. Dividends, Not Compensation
Dividends are taxed at a maximum of 15%, while compensation is taxed at the top bracket. This is especially great when the corporation fits into a lower tax bracket, so incurring losses from the deduction for dividends paid can be offset by the savings of the owner.
16. Don’t File Your Tax Return Late
This should go without saying. If you fail to do so, you’ll have additional interest and penalties. You could have saved hundreds of dollars if only you’ve been punctual.
17. Don’t Forget to Take Money Out of Your IRA
Those above 70 ½ are mandated to withdraw a minimum amount of money out of their IRA each year. If you forget, the IRS will get a whopping 50% of the amount you should have taken out.
18. File Separate W-4 Forms for Your Side Jobs
You might be in for quite the shock if you have money coming in that isn’t tax withheld. File in a new W-4 with a value to be withheld from your regular pay so you don’t have to pay such high taxes.
19. File Your Travel Costs in Medical Deductions
Declaring those travel expenses can really save you a buck or two. You can even deduct $50/night per person if you’re traveling far to seek medical care. You only get a tax benefit if these medical expenses go higher than 10% of your adjusted gross income. This percentage is knocked down to 7.5% when you’re 65 or above.
20. Get A New Car for Your Business
Congress offers special tax incentives when you purchase a pick-up truck or a heavy sports utility vehicle for your business. The first year write-off for business cars is around $12,000, but you can get more when you buy a pick-up.
21. Get a Self-employed Retirement Account
For those who own their own business, you have your pick of retirement accounts including the Simplified Employee Pension (SEP) and individual 401(k)s. Contributing to these plans cut the amount you pay for taxes and let your earnings grow completely tax-deferred.
22. Get an IRA
You don’t have to be in your senior years to have an Individual Retirement Account. You can contribute $5,500, or $6,500 if you’re 50, to your IRA. Contributions to traditional IRAs are often tax deductible.
23. Get Help from Your Parents in Paying for Your Student Loans
Did you know that you can claim a tax deduction for interest on payments your parents make for your student loans? Well, you can, as long as your parents don’t claim you as a dependent.
24. Get Some Tax-Free Bonds
It’s just a couple simple steps to find out if you’ll come out in the green with tax-free bonds. Divide your tax-free yield by 1 minus the federal tax bracket you’re currently in to get the taxable-equivalent yield. Swapping bonds may work well or may not. It’s best to study the market. When interest rates are high, bond values are usually low. Sell those bonds that have depreciated, then cash in the loss. After that, you can just invest in bonds that have a bigger potential.
25. Go from Vacation Home to Forever Home
Remember the tax break that allows you to take up to $250,000 tax-free profit from home sales? That’s usually just for your primary residence, but you can work the system in your favor if you convert your house on the beach into your primary residence 2 years before selling it.
26. Have a Record of Your Tax Basis
Your tax basis is how much you’ve invested in the assets you’ve bought. It’s the figure where gains and losses are seen. Each purchase of additional shares you make adds to your tax basis, if you use your dividends. If you keep an eye on your tax basis, you can avoid overpaying for profit taxes when it comes to selling.
27. Higher Education and Higher Savings
Saving up in piggy banks is okay, but opening a custodial account for your kid’s college education is even better. Also, consider using state-sponsored 529 college plans to make your income tax free. Unlike the custodial account, this gives you full control over the money, so you don’t have to worry about college shopping sprees.
28. Hire a Tax Pro
Tips on the internet are fine and all, but nothing beats sitting down and having a conversation with a tax professional. They might catch some mistakes you’ve made when you tried to manage your books.
29. Hire Independent Contractors
By doing this, you won’t have to pay for their benefits or payroll taxes. Be careful though because once the contractor starts to meet the legal definition of an employee, you may face penalties.
30. Hit the Reset Button on Bad Roth IRA Conversions
Say you’ve already made the switch from traditional to Roth IRA. However, your investments have fallen in value. Thankfully, there’s a reset button. As long as you get the paperwork done before October 15 of the same year, you can convert back to a traditional IRA and avoid paying tax on money you already lost. After this, if you still wish to have a Roth IRA, you can simply redo the conversion the next year.
31. Home Office Rules are Your Friend
If you do a lot of your work in a home office, you can deduct some costs incurred. After all, working at a home office takes up more energy than just normal personal use of amenities in your house. You can include part of your utility bills, home maintenance costs, and insurance premiums in this deductible chunk. If you’re not one for complex math, just claim the standard deduction of $5 per square foot of home office space. You can claim up to 300 square feet.
32. Installment Sales on Real Estate is the Way to Go
The IRS will allow you to pay your tax bill in installments, if the buyer of your property pays in installments. You have to charge interest on the deal, though. The payment you receive has three parts: capital gain, tax-free return on investment, and interest that’s taxable at your highest rate.
33. It Pays to Give
While you’re being charitable here, don’t forget to keep track of the money you spend while doing charity work. Everything from soup kitchen ingredients to gas money can be included in your charitable contribution deduction.
34. Keep a Close Eye on Home-Equity Debt
If your home has a debt of up to $100,000, the interest can be deducted. When it comes to Alternative Minimum Tax or AMT, home-equity debt is only deductible if your loan is for renovating or buying the house.
35. Keep the Business in the Family
Hiring your children can be very advantageous when it comes to taxes. You can deduct the salaries you pay them, putting the income into their tax bracket and not yours. The kiddie tax won’t apply here because wages are an earned income. If your child is a minor, they don’t even have to pay social security tax.
36. Keep Track of Costs for Medically Necessary Improvements
Adding a wheelchair ramp or putting hand controls for your car can be part of your deductible medical expenses if the cost exceeds added value to your home or vehicle.
37. Keep Track of Job-Hunting Costs
If you’re unemployed but looking for work in the same field you were previously in, you can deduct your job hunting cost from your adjusted gross income. This includes trips to interviews and employment agency fees.
38. Keep Your Business and Personal Life Separate
Business owners make the common mistake of putting their business and personal funds together. It’s key to have separate accounts for these. Not only will it be easier to manage your finances, but you’ll also be more organized when tax day comes.This also provides great evidence in case you’re accused of an audit.
39. Know When or When Not to Pay Estimated Taxes
If you happen to get a huge spike in income not subject to being withheld, you’ll most likely need to make quarterly estimated tax payments to escape the IRS breathing down on you. However, if withholding equals 100% of your annual income tax bill, you won’t need to pay those estimated payments no matter how much extra cash comes your way in the following year.
40. Leave Your Assets to Loved Ones
Make sure to keep your IRAs and 401(k)s beneficiary designations up to date. If your assets end up in your estate instead of a person, withdrawal rules could cost a lot of money to those you leave behind.
41. Let Your Kids Borrow Your Money
Sometimes it’s better to just lend your kids money if they want to start a business or buy a house. If they want to borrow more than $10,000, you’ll have to charge a minimum amount of interest. And even if you don’t, you still have to report that interest as income.
42. Level Up Your Charitable Work
If you’re feeling generous and want to donate to charity, don’t write them a check or pay with cash. Instead, give them appreciated stocks or mutual fund shares you’ve had for more than a year. The deduction for your charitable contribution is the fair market value of the stocks you donated, not how much you bought it for. What’s more, you don’t have to pay taxes for the profit you got from those stocks. It’s a win for you, and a win for a good cause.
43. Only Two Things are Certain in Life
A person who is at death’s door will most likely want to sell all their investments that show a loss. The tax basis of the property, however, will become the date of death value. That prevents people from claiming the loss. To keep something in the family, sell it to a relative. You won’t get a deduction for your losses, but you could save on buyer taxes down the line.
44. Put More Into Your Retirement Savings
Reducing taxable income is one of the best ways to lower your taxes. You can put money into your 401(k), which won’t increase your taxable income.
45. Relax, But Not Too Much
If you are renting out your vacation house, be careful not to use it too much. Too much is when your stay there exceeds 14 days, or more than 10% of the days that the home is rented. The good thing is that repairing and renovating your vacation house doesn’t count as personal use.
46. Repay 401(k) Loans Before Leaving a Job
If you don’t do this, your loan will be considered a distribution. This means it will be taxed in your top tax bracket.
47. Save Money Using a Roth IRA for your Child
The minute your kid starts making money, they qualify for an IRA. It would be unlikely for their money to fund that account, but what you can do as a parent or guardian is to match the child’s contribution. Imagine the kind of savings this tax-free fund can give!
48. Save Up on Taxes for Your Second House
The IRS will help you out if you want to figure out if you can afford a second house. You can deduct mortgage interest on the second house just like your first house. Same thing for the second home debt and interest up to $1.1 million. You can also write off property taxes.
Note: To make the most out of your second home, consider renting it out.
49. Save With Savings Bonds
You could avoid interest taxes if you cash in your Savings Bonds to pay college fees. Keep in mind, you have to be at least 24 years old when this bond was issued.
50. Strategize on the Best Day for Your Wedding
Weddings near the end of the year are subject to a marriage penalty, which forces some couples to pay more tax as a married pair than they would if they were single. Sometimes though, getting married saves on taxes. Really look into the tax laws of your area and find the best date to save some tax dollars.
51. Study the Cost of Starting a New Business
The cost of starting a new business is deducted over a long period of time. You could deduct up to $5,000 of the cost of your start-up in the same year you incur them. This will be very helpful for keeping your tax savings at a maximum.
52. Study those Paperwork!
Keep track of your tax basis because some of the costs that come with buying a new house will certainly affect it. Also keep an eye on the points your seller pays for you, or that you pay yourself, to get property taxes and a mortgage paid in advance before you move in to your new place.
53. Study While Working
Some companies offer as much as $5,250 for their employees to further their studies. Your boss pays the bills, and it doesn’t affect your salary. The best part is, the classes you take don’t even have to be related to your line of work, and you can even take some graduate-level courses.
54. Swap Rental Properties
When you trade one rental property in for another one, you can avoid the capital gains taxes you’d have if you sold your first property. Now you’ll have spare cash to invest more in the one you traded for.
55. Switch to a Roth IRA
Even though transferring from a traditional IRA to a Roth IRA puts a tax on the converted amount, the benefit still outweighs the initial spending. Any future money earned in your Roth IRA will be tax-free upon retirement.
56. Take Advantage of 0% Tax Rate on Gains
If you find yourself in the lower tax brackets, you don’t have to pay taxes on long-term capital gains. Buy some gains earlier in the year and sell them for a profit later in the year. You will have to pay a trading fee, but you’ll owe less tax on future gains.
57. Take Advantage of Flex Plans
If your employer offers a flex plan or a medical reimbursement account, make use of it! You can use this to put away a chunk of your salary for medical purposes. Money in this plan avoids both income and social security taxes.
58. Take Advantage of Long-Term Care Premiums
Part of the cost of long-term care insurance is tax deductible. As you get older, you can write more expenses off. If you’re an employee, this may not seem as good. It only saves you cash if your medical bills go higher than 10% of your adjusted gross income. The percentage bumps down to 7.5% if you’re 65 and above. If you’re self-employed though, you receive this deduction even if you don’t itemize your expenses.
59. Take Advantage of New Rules and Roll Over Your Inherited 401(k)
The new changes in tax rules let a beneficiary of a 401(k) roll over the inherited assets into an IRA. You can stretch out the payments over your lifetime. This is a great new rule because you no longer have to cash out the account you inherited, taxes and all, within five years.
60. Take Advantage of Your House’s Great Location
If you happen to live in an area where a lot of events take place, consider renting out your house temporarily. You’ll make a quick tax-free buck while you relax out of town away from all the tourists and event-goers. There’s even a special provision that states you can rent your house for up to 14 days a year without having to write down the money you get as income.
61. Take Lunch Meetings
Did you know you can deduct 50% of the cost of meals as long as they’re business-related? Well, you most certainly can. You can save up on tax money and have better relationships with your business partners and co-workers.
62. Take the Real Estate World by Storm
If you’ve lived and owned your house for 2-5 years leading up to a sale, then up to $250,000 of your sale profit tax will be free. It even bumps up to $500,000 if you’re married to someone and filing for a joint return. The best part is there’s no limit on the number of times you can claim a tax-free profit when selling a house.
63. Tax Bills are a Big No
Check which fund will distribute dividends before investing in a mutual fund in the last quarter of the year. Buy right before the payout and you’ll find the dividend will rebate a portion of your purchase price. You will owe tax on the amount, though. If you buy after the payout, not only will you get a lower price, but you won’t have tax bills either.
64. The Earlier You Pay, The Better
If you happen to get a fringe benefit in the form of a restricted stock, think about getting an 83(b) election. You can pay the tax on the value of your stock immediately. This is great because you pay a smaller amount of taxes rather than a larger one if you’ve waited until the stock grows. Hurry though, because this election only gives you 30 days to pay the amount.
65. The Government Rewards Those Who Take the Initiative in Creating a Greener Planet
If you install alternative energy equipment like solar panels, geothermal heat pumps, and wind turbines, you can get a tax credit. This credit equals to 30% of what you spend getting this equipment, including labor costs.
66. The Longer You Keep Your Mortgage The Better
Usually, people want to pay off their mortgages right away. Homeowners will benefit more from their tax deductible mortgage interest payments, if they keep their mortgage as long as possible.
67. The Section 179 Deduction is a Business Owner’s Friend
This deduction lets you recover the cost of property and equipment up to $500,000 that was purchased for business-related things in the same year you purchased them. This is definitely better than getting back the cost over a period of 5 years or so, since your deductions might get depreciated.
68. Think Hard Before Selling Stock if You’re in an AMT
Alternative Minimum Tax or AMT can lead you to spend more on capital gains. As your income rises, the AMT exemption becomes phased out. Look at it this way, a $1,000 capital gain can take $250 of the exemption. Now you have $1,250 exposed to tax.
69. Time Your Sales
You have to own your investment for more than a year to get for preferential tax rates and long term gain. Start the countdown from the day you bought the asset, and end it on the day you sell it.
70. Treasury Bills Can Defer Taxes
Three-month and six-month treasury bill interest is taxed in the same year it was paid. This means if you buy a treasury bill in 2017, you won’t have to report it in your income until you file your 2017 taxes on 2018. What’s more, interest from your treasury bill is exempted from local and state taxes.
71. Try to Predict Cash Flow
Estimate your tax impact by building a cash flow forecast. Plot out the flow of the things you’ll pay for and the money you’ll get paid along with your budget. This can save you during tax season and help you sort of perceive the future of your business.
72. Use Pre-tax Dollars to Pay for Child-care
Using a child-care reimbursement account, you can pay those bills with pre-tax dollars. This plan helps you avoid income and social security taxes. Doing this can save your a third or more of the usual cost.
73. Use Self-Employment to Your Advantage
If you run your own business, you’ll have a lot of flexibility at the end of the year. As much as possible, delay sending invoices to clients until later in December to make sure your payment is received after the 31st. You can also pay business expenses before the 1st of January to get deductions.
74. Use the Internet for Your Tax Returns
File your tax returns online to ensure you’ll receive them on time. There are programs available online for free. When you file your tax returns online, you’ll receive a confirmation number once the IRS has gotten your money. It’s all very safe and easy.
75. Use Your IRA to Invest in Alternative Resources
Your IRA can actually be used to invest in a lot of interesting things like gold, oil, and livestock. This is a great way to diversify your portfolio. These alternative investments provide a nice safety net in case of losses in other assets.
76. Use Your Portfolio to Save Some Money
If you’re a savvy investor, you have good control over your tax liability. At the end of the year, look back on your portfolio and see whether you’ve mostly gained or lost assets. If you’ve suffered a loss, you could take some of the profit tax free.
77. Use Your Retirement Savings to Help Your Older Kids
For low income taxpayers, you can use your Retirement Savers Credit to save up to $1,000 in your company’s retirement plan or IRA. A parent can also give their adult child who isn’t a full-time student money to fund the contribution to the retirement account. This lets your child save up on taxes and for their retirement.
78. Utilize your Roth IRA for College Savings
Remember, withdrawing money from your Roth IRA is completely tax-free and penalty-free. This means that your Roth IRA is a great way to have a tax-deferred savings plan for college. You or your partner have a lot of time to save up, so all your money plus the interest that accumulates over time can be withdrawn penalty-free.
79. Wait Before Getting Your Social Security Benefits
If you delay cashing in on your social security, you can get better benefits. You’ll also delay the time you’ll owe tax on your social security if you wait.
80. Write Down the Cost of Taking a New Job
If the job you’re going to take is at least 50 miles away from your home, you might think of moving closer to it. You can actually deduct your relocation.
81. Your Broker is Your Best Friend
Senate tax plan:
If you make under $75,000, you’re getting a hike.
Over $75,000 and it’s a cut, but small and temporary.
Corporate tax cut is permanent and will be used to enrich the top 20% (the investor class).
— Downtown Josh Brown (@ReformedBroker) November 19, 2017
Be chummy with your broker and ask if you can sell depreciated stocks to them for a nominal amount. When you do this, you can put the sale on record and claim a loss.
For more on how to reduce your taxes, specifically your taxable income, check out this video by Pure Financial Advisors, Inc.:
Everyone wants to know how to save taxes and maximize their own money. It may seem difficult and overwhelming at first. If you remember these tips, you’ll be swimming in the cash you saved from your taxes.
Do you have your own tips and tricks for lowering your taxes? Share your thoughts with us in the comments section below!