Table of Contents
Chapter 1: Manage Your Taxes
Chapter 2: Estimated Tax Payments
Chapter 3: Capital Gains Tax
Chapter 4: Tax Planning & Filing Your Taxes
Chapter 5: Lowering Your Tax Liability
Chapter 6: Tips for the First Time Tax Payer
The whole idea of tax planning is to work on your income and expenditure to reduce the amount you pay as tax. There are several ways that the government allows you to reduce your total tax liability.
Tax Deductions
Standard tax deductions and itemized tax deductions reduce your burden to a great extent. The adjustments to income are specific expenses like tuition fee, health savings, alimony paid etc that are mentioned on your form 1040.
Deductions like expenses on moving expenses, healthcare, taxes paid to state or local governments, contribution to charities, investment expenses etc have to be mentioned on schedule A that lists out all your deductions item by item. By contributing to an Individual Retirement Account (IRA), you can exclude a considerable amount from your taxable income.
Tax Credits
Tax credits are sometimes more effective than tax deductions in reducing your taxes. Here are some of the common tax credits:
- You are eligible for adoption credit, of up to $13,170, if you have adopted a child and paid for all the adoption relation expenses from your pocket.
- Lower income families qualify for a refundable tax credit known as earned income tax credit.
- If you have a child as a dependant, you are eligible for a federal tax credit of up to $1,000.
- Tax credit is also allowed if you are saving for retirement, depending on your overall income and filing status.
- You can get the credit for elderly and the disabled if you are 65 years and older or if have retired because of permanent and total disability.
- In addition to the tuition fee deduction, you an also get education credits like American Opportunity Credit, Hope Credit, and Lifetime Learning Credit.
Married Couple Filing Jointly
If you are married, you pay lesser tax when you file the income tax jointly with your spouse, than you would if you filed separately. In addition to lower taxes, your standard deductions are also higher with other benefits specific to this filing status.
Claiming for Dependants
By claiming qualified children and relatives as dependants in your tax form, you enjoy a few tax credits like child tax credit, adoption tax credit etc. To be a qualified dependant, the person must be:
- Your child, step child, foster child, siblings or their descendants.
- Aged below 19 (or 24 if they are full time students) and of any age if they are completely and permanently disabled.
- They provide less than half their support during the year.
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