But more importantly, they can also take up your money if you’re not careful. On one hand they cost you way more than is necessary if you’ve got a pretty simple return to file. Or on the other hand they can turn into a costly nightmare if you make a mistake or file them incorrectly. It can be a scary fine line.
Luckily, there have been a lot of advances in tax preparation over the years (such as e-filing), and there are now a lot of good ways to make sure you don’t end up shooting yourself in the foot.
Here are 24 ways how to save money while preparing your tax return this year.
1. Do it electronically.
Preparing your taxes by paper and doing manual calculations is a good way to make a mistake. When you prepare them electronically, you’re far less likely to make an error.
2. Prepare them yourself.
If your taxes are relatively easy, use a discount software program like TaxAct to file your taxes. Most of the time your Federal is free to eFile and the state portion will cost just some small fee.
3. Or pay a professional.
If your taxes are more complicated, fork over the money to a professional to have them done right. It will cost you more up front, but you’ll save yourself potentially thousands of dollars in fees and penalties should something go wrong.
4. Married Filing Jointly or Separate?
If you’re married, always compute your taxes both as “Married Filing Jointly” and “Married Filing Separate”. Sometimes one way or the other may turn out better. Most tax software does this for you automatically to help you get the best deal.
5. Watch those exemptions.
Don’t claim too many exemptions and pay too little into your taxes throughout the year. If you do, there could be penalties.
6. Claim your children as dependents.
In addition to the exemption, you may also qualify for a child tax credit.
7. Save using tax-deferred retirement accounts.
You can easily lower your level of taxable income by contributing to your 401(k) and IRA retirement funds.
8. Participate in other tax-advantaged savings programs.
A 401(k) and IRA are not the only way to lower your tax bill. You can make them even lower by participating in an FSA, HAS, or 529 college savings program.
9. Don’t sell your stocks at all.
If you don’t necessarily have to sell your stocks, then don’t. You only pay capital gains when you sell, not when you hold.
10. Or sell just your losing stocks.
If you have stocks, sell your losers to offset your capital gains.
11. Start a SEP IRA.
If you earned money on the side, claim it as business income and start a SEP IRA to pay yourself for retirement instead of into taxes.
12. Pay your taxes early.
If you do earn side income and need a way to pay into your taxes periodically to avoid penalties, set up a quarterly pre-payment schedule.
13. Don’t switch to a Roth.
Don’t switch between a traditional and Roth IRA or 401(k) without understanding ahead of time the total tax implications. You may have to pay tens of thousands of dollars!
14. Cash in on your rentals.
If you’ve got rental properties, you can deduct depreciation and repairs as business expenses.
15. Don’t always take the Standard Deduction.
Taking the standard deduction is the “easy button”. Sometimes if you’ve got a mortgage, a lot of medical bills, or working expenses, itemizing can help you to claim even more. Calculate it both ways.
16. Keep track of your medical expenses and mortgage interest throughout the year.
This will help you with that to see if that Standard Deduction is really better as an itemized deduction.
17. See if you qualify for the Earned Income Tax Credit.
Depending on your income level, the Earned Income tax credit could help you save even more money.
18. Claim dependent care expenses.
If you have children, claim dependent care expenses such as daycare.
19. Claim higher education expenses.
If someone in your house pays tuition to go to school, claim those higher education expenses.
20. Claim educator expenses.
If you’re a teacher, remember to claim educator expenses.
21. Claim work-related expenses.
Do you have any work related expenses that you don’t get reimbursed for? Claim these as well.
22. Claim your union dues.
If you belong to a union or association as part of your employment, claim your dues.
23. Be generous and donate!
Save and record receipts for all your donations. They count as deductions.
24. Claim energy efficiency credits.
Check to see if any improvements you’ve made to your house qualify for an energy efficiency credit.
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