Income Tax Savings Tips

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Finding tax savings and reducing your taxes can be a time-consuming task since existing tax laws change frequently while new tax laws are constantly introduced. Keep up-to-date on the latest methods of tax reduction and the most effective tax planning tips. One of the most important steps a wage or salary earner can do is monitor the ongoing tax withholding per paycheck. Whatever you enter on the W-4 now, you still won't know how it will impact your next tax return regarding a tax refund or taxes owed. For example, if you received a tax refund as a result of your latest tax return or you are expecting a refund next year, you may decrease the amount of taxes withheld from your paycheck so you get your refund money now via increased paychecks. The challenge is to know how to balance this. On eFile.com, we make it easy to determine optimal withholding with free tools and calculators.

From there, you can prepare and e-file your 2020 Taxes with eFile.com and we will help select deductions and credits to get the most out of your refund. Your 2020 Tax Return is due April 15, 2021.

Tax-Free Income

Tax-free income is compensation you receive which cannot be taxed by the IRS. Looking for a pay raise but not more taxes? Assistance in the form of money or services is nontaxable income. Here are several examples of expenses that can be paid or reimbursed by your employer without burdening you with any new income taxes:

  • $5,250 for education
  • $5,000 for child care assistance
  • Adoption assistance and reimbursements
  • $260/month for public transportation
  • $260/month for parking
  • Health insurance premiums
  • Group-term life insurance premiums
  • Health Savings Account contributions
  • Athletic facility privileges
  • Meals provided at the workplace
  • Retirement planning services
  • Worker's compensation
  • Welfare benefits
  • Gifts, bequests, and inheritances
  • Court-awarded compensatory damages
  • Cash rebates from dealers or manufacturers

Tax planning can help reduce your tax bill and earn you a bigger tax refund. Start your tax planning now so you are prepared once tax season arrives. Check out our list of tax planning tips and this helpful checklist that may help you increase your tax savings, optimize your tax deductions, reduce your tax burden, and ultimately save you money on taxes!

Tax Tip: Plan your tax savings during the months of October, November, and December so you are ready for tax season.

Costs associated with Working

Start Federal and State Tax Returns

Save Taxes on Home and Car Expenses

Save Taxes on Family Life

Deduct Charity Donations

Turn your kindness into cash back! See how you can save money on charitable donations: 

  • Claim Tax Deductions for Charity Donations- If you donate money or goods to charities or religious organizations, you may be able to deduct the value of your donations. Be sure to get receipts for any donation worth over $250. During the 2020 or 2021 Tax Year, an individual can give up to $15,000 to children or grandchildren without any gift tax (a couple could jointly give a gift of up to $30,000 tax-free). Any gift over that amount is subject to a gift tax, which is incurred by the giver, not the recipient.
  • Deduct Charitable Mileage Expenses- If you used your vehicle for a charitable organization, you may be reimbursed a certain amount per mile driven. 

Save Tax Money on these Other Expenses

  • Report Gambling Winnings and Claim Losses- Whether you gambled and won or lost, it affects your taxes. All gambling winnings (poker, slots, etc.) must be reported as taxable income. Any gambling losses may be claimed as deductions up to the amount of your winnings. Winnings and losses must be reported separately. Additionally, report any and all winnings and losses you may have accrued during the tax year, such as stocks.
  • Capital Gains- You can create a personal residence trust that transfers ownership of your home to your children, but allows use of the home for the life of the trust, usually 10-20 years. Creating the trust now allows your inheritors to gain your property at the currently depressed values while you still retain the property as your residence. The home’s estate tax value is locked in at the beginning of the trust, taking advantage of the currently depressed housing market. If you live longer than the trust, the home is no longer in your estate. Read more about Sales and Other Dispositions of Assets or Investment Income and Expenses in these IRS Publications, courtesy of eFile.com.
  • Claim Deductions for Rental and Other Miscellaneous Income- Miscellaneous Tax Deductions have been eliminated after 2018. For the purpose of previous year tax returns, if you rent a safety deposit box to store stocks, bonds, and other paperwork for investments producing taxable income, you may be able to deduct the cost of the rental.
  • Deduct Now and Pay LaterDeductions apply to more than the cash or debit purchases you made in the current tax year. You can also take deductions for the tax year in which you charged goods or services with a bank issued credit card even though you may pay for those charges after that tax year. This can be useful to small business owners or self-employed service providers that can claim depreciation on business property purchased on credit.
  • Save Money in Other Ways- Around the housegoing out, saving on travel and school, school tax credits, and everyday saving expenses. Consider this page on money-saving during hard times if you are faced with financial or personal struggle.

Put your tax planning into action and estimate your 2020 Tax Return with the easy to use eFile Tax Estimator and Calculator. To get the most out of your 2021 Tax Refund, prepare and e-File your 2020 Taxes with eFile.com and TAXercise your paycheck!

Keep up to date with changed, extended, or canceled tax breaks.

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