It’s oh-so-nice to get a tax refund in the spring – but if you were unlucky enough to owe taxes on April 15, lowering your tax burden for next year may be your goal. Here are seven tips on how to do just that.
1. Increase your withholding. If you owed taxes this year, your employer may not be taking enough withholding from your paycheck. In that case, it is time to file a new W-4 tax form with your employer and reduce the number of exemptions you claim. Having a little more come out of each paycheck is far less painful than writing a big tax check next spring. You can use TurboTax W-4 withholding calculator to help you.
2. Contribute the maximum to your 401(k) or 403(b) retirement plans. In 2015, you can contribute up to $18,000 to your 401(k) and 403(b) plans. If you are 50 or over, don’t forget that you can contribute an additional $6,000 “catch-up” contribution in addition to the regular 401(k) or 403(b) $18,000 limit.
3. Own your own home. Mortgage interest and property tax deductions will cut your taxes enormously. When you buy your new home, review your settlement statement carefully for deductible items. You’ll find points, prepaid interest, property taxes, and other deductible items on your closing statement. Points paid when you acquire your home are deductible in that year. Points paid to refinance a loan must be written off over the length of the loan (1/30 each year on a 30-year loan). But if you refinance again, don’t forget to write off the remaining unamortized points in the year you refinance.
4. Clean out your closets and donate to charity. In addition to creating new space in your life, you can take a quick tax deduction for clothes, sporting goods, linens, and other household goods that you no longer use. Books and magazines can be given to the library. Make a list of the items at the time you donate them so you can deduct the thrift store or fair market value. TurboTax ItsDeductible can help you value and track your contributions all year long.
5. Go solar. The environment is constantly in the news, and Uncle Sam is willing to help you do your part. Because solar energy is so efficient, the government is offering a 30% tax credit for solar energy systems and geothermal heat pumps you install in your home, as well as small wind turbines. This credit is available through 2016.
6. Get educated. If you want to go back to school to learn a new career, update skills in your existing career, or study a subject you are interested in just for the heck of it, and your income is moderate you may be eligible for the Lifetime Learning credit as well as college credits. You can claim a tax credit of 20% of all your tuition expenses, up to $2,000 in tax credits per tax return. You don’t need to be on track for a degree – the cost of any class that you take at the college level is eligible for the credit. . If you or a family member is pursuing a degree, you may be eligible for the American Opportunity Tax Credit, which gives you credit for 100% of the first $2,000 of qualified expenses plus 25 percent of excess expenses, up to a maximum annual credit per student of $2,500. TurboTax makes it easy to claim education tax benefits: just answer a few easy questions, and TurboTax will compute the tax deduction or credit that maximizes your tax savings.
7. Deduct your job-hunting expenses. If finding a better job is on your to-do list this year, keep track of the expenses you incur. You can deduct the cost of job-hunting travel, meals, telephone calls, resume preparation, career counseling, and employment agencies, to the extent that they exceed two percent of your income as long as the job is in your same profession. This is true even if you don’t actually change jobs.