With 2014 well over and the spring of 2015 looming, you may find yourself gathering all of last year’s tax information and getting ready to file your income taxes. Maybe you expect a refund or maybe you dread writing a check to Uncle Sam. If the latter, here are some tips to reduce your tax burden for 2015.
Contribute more to your 401(k). You make these contributions in your retirement plan before you pay tax on the money. This lowers the amount of your taxable income, potentially reducing the amount you may owe at tax time and increasing your retirement savings.
Contribute enough of a percentage of your pay to get your employer match. Many employers match around 5% of an employee’s pay.
Take advantage of a deductible individual retirement account contribution. If your employer doesn’t offer a plan, set up and automatically save post-tax dollars to an individual retirement account. Your contributions to a traditional IRA may be tax-deductible; withdrawals from a Roth IRA in your retirement will be tax-free.
According to the Internal Revenue Service, your total contributions to all of your traditional and Roth IRAs this year cannot be more than $5,500 ($6,500 if you’re 50 or older) or your taxable compensation for the year if your compensation was less than this dollar limit.
Generally, your deduction for the above IRAs may drop or completely disappear if you already have a workplace 401(k) available and your income exceeds certain limits.
Increase withholding. Changing the amount withheld from your paycheck can help you decrease, if not eliminate, what you owe at tax time. An IRS calculator helps you figure how much to withhold and how much of your paycheck to keep.
Events during the year may also change your marital status or the exemptions, adjustments, deductions or credits you expect to claim on your tax return. You may need to give your employer a new IRS Form W-4 to change your withholding status or number of allowances.
Make your home energy-efficient. Investing in lowering your home’s energy consumption may open up credits to in turn lower your overall tax bill.
Improvements qualifying for credits include devices to harness solar and wind energy, geothermal heat pumps and electricity-producing fuel cells. These credits often cover almost a third of the cost of installation. You can also credit up to $500 for more usual improvements such as insulation, exterior doors and windows and heating and cooling equipment.
To see if you qualify for these credits, click here.
Start or increase your charitable giving. Giving to help others not only feels good – the IRS also provides some tax breaks for charitable givers. From giving to your church to donating items to the local foundation, you can open your heart and lower your tax bill.
These breaks do come with conditions:
- You can’t deduct contributions to specific individuals, political organizations and candidates, and you must give to a qualified organization. See IRS Publication 526, “Charitable Contributions,” for what constitutes such an organization and for income limits to claim deductions.
- To deduct a charitable contribution, you must file IRS Form 1040 when you file your taxes, and you must itemize deductions on Schedule A.
- If you receive a benefit because of your contribution such as merchandise, event tickets or other goods and services, you can deduct only the amount that exceeds the fair market value of the benefit.
This article originally appeared at AdviceIQ.
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