Income taxes are mystifying to many people. If you’re worried about having to pay, consider these eight ways to reduce what you might have to pay.
Many people are paying too much in taxes due to withholdings from their paycheck. If you see you paid too much, you can adjust your W-4 to withhold less.
Giving money to charity is sometimes deductible, and you can also figure the out-of-pocket expense you incur while doing charitable work. You can also give charities mutual funds or stocks that have appreciated and that you’ve owned for at least a year. It’s best to do this with investments that haven’t lost value.
The money you put into your 401(k) isn’t taxable up to certain limits. The IRS sets this limit each year. For 2017, the limit is $18,000 of contributions for the entire year. It doesn’t matter when the contribution is made during the tax year, so make sure you evaluate this close to the year end to see where you stand.
If you are 70.5 years old, you must make withdrawals from your IRA that meet a certain minimum. If you don’t do this, you’ll be subjected to a 50-percent tax based on the amount you were required to withdraw.
This tax credit is for people who have qualifying children and/or meet specific income requirements. This credit is payable to you, which means that if the credit is more than what you’re liable for, you’ll receive the difference in a refund.
When investing in mutual funds, check the dividend pay date. Buy the mutual fund right after the payout, when the price of the mutual fund is lower because of the payout. This is also when you can purchase without increasing your taxes since you won’t get that dividend payment.
Treasury bills give you a chance to temporarily offset taxes. The tax on these bills is due the year in which they pay out. This means you can invest some now and deal with paying the taxes when the bills pay out. Make sure you check the payout date before purchasing.
While this tip won’t help you while you’re alive, it can help reduce the taxes your loved ones will have to pay after you pass on. You can give away up to $14,000 per person per year. There isn’t any limit to the number of people you can give money to. This means you could give ten people $14,000 in a year, which reduces the estate size by $140,000.