How To Save Money on Taxes

The typical person makes his hard earned money work after deduction of credits and expenses. Parents have been teaching their children to be thrifty and deposit some money in the piggy bank, as a simple way to save money. As we grow older, saving is no longer that simple. Purchasing power must be used wisely or else you will end up broke days after payday.

Taxes are considered as legal obligations and a monetary burden to taxpayers. Avoiding taxes are certainly not the possible solution to lessen the burden. Taxes can be minimized in a way that is acceptable legally and morally. It is best to keep a record of all your financial transactions, such records will show how well your spend planning went and take the appropriate actions. It is equally important to know how to manage finances and organize bills payment and other liabilities.  

Additionally, knowing the tax law and tax deductions to which you are entitled will best serve your finances. And the following tips to help reduce taxes:

• Use Earned Income Tax Credit. It is a refundable tax credit for working individuals or couple particularly with children with low to moderate income. For a couple to claim one or more of their qualifying child, requirements such as relationship, age, and shared residency must be met. For working families with children, annual income must be below $37,870 to $51,567 may be eligible for the federal EITC. For a single person or couple filing without qualifying children, the maximum benefit is $487. The maximum benefit for a person or couple with one qualifying child is $3,250, with two children, it is $5,372, and if with three or more children, it is $6,044

Contributions to a retirement plan. It is a tool for tax reduction. Your contributions to your retirement account are deductible from your taxable income. It offers two benefits, saving more for your retirement and lowers your tax debts.

• Self-employed individuals are eligible for tax deductions. You are considered self-employed if you carry on a trade or business as a sole proprietor or as an independent contractor, or a member of a partnership that carries on a trade or business. Part-time businesses are also included. If a person who earns an income less than $400 from self-employment doesn't have to pay any tax.
• Health saving account. In the US, it is a tax-advantaged medical savings account available to taxpayers who are enrolled in a high-deductible health plan. The funds contributed to an account are not subject to federal income tax at the time of deposit. HSA funds roll over and accumulate year to year if they are not spent. Investment earnings are sheltered from taxation until the money is withdrawn.
• Contribute to charities. It is important to keep receipts and records for your donations. If you donated cash of less than $250, a canceled check or a receipt showing its name, the amount and the date of the contribution is sufficient. If the contribution is more than $250, a written documentation from the charitable organization is required. It must show the amount you gave and whether or not you received anything of value as a result of your contribution.

Contributions to qualified charitable institutions are deducted from your adjusted gross income depending on the nature and tax-exempt status of the charity you're giving to, deductions are up to 30% or 50%. If the gifts you gave exceeded these thresholds. You should not worry; you can carry the excess to the subsequent tax year. Excess contributions can be carried over for a maximum of five years.

• Mortgage interest payments or relief. It is a tax relief based on the amount of qualifying mortgage interest that you pay in a given tax year for your principal private residence. Mortgage interest relief is administered via Tax Relief at Source (TRS).  Your mortgage lender will give you the benefit of tax relief on the amount of mortgage interest paid. The mortgage repayment is reduced by the lender on the amount of tax relief which you are entitled to the year. Any amendments to this tax relief or a change in the interest rates are made automatically by your lender. You do not have to be earning a taxable income to qualify for mortgage interest relief.