How to save money if you owe taxes this year
It is time again for the subject no one wants to think about: taxes. Your return is not due until April 15, but smart taxpayers envision ways to save money well before that day arrives.
Here are a few tips for cutting your tax costs if you are likely to owe money:
USE A TAX SOFTWARE PROGRAM
If your return is simple, using tax software can save you both time and money. There are a lot of tax software programs, and many will let you file basic federal tax returns free.
The difference between the software packages is really in the details and in how comfortable an individual is with each program. H&R Block, TurboTax and TaxAct all offer great ways to save.
TAKE ADVANTAGE OF THE TAX CODE
Another trick to saving money on taxes is to take full advantage of the tax code. Accountant William Rivero of the accounting firm Correia Rivero and Lefebvre in Danbury, Conn., noted that both the Internal Revenue Service and Congress change the tax code up until the last minute.
“Deals by Congress in December can sometimes open up new opportunities for deductions, but they can also mean delays in filing are necessary,” he said. “An accountant can be very helpful in this regard.”
If you are self-employed or an independent contractor, setting up a limited liability company — more commonly known as an LLC — is one good way to enjoy a new set of tax breaks. This can be a great way to take advantage of tax loopholes and to maximize tax flexibility while minimizing taxable income.
There are many tax benefits to an LLC, but consider one of the lesser-known perks: the personal sale-leaseback. Under this loophole, you can lease a home office to yourself in order to run your business. This lowers personal income and creates LLC income. This LLC income can then be offset by LLC expenses that would not normally qualify as deductible personal expenses.
Remember that these expenses need to be legitimate business costs, and that you need a formal lease agreement.
LOOK FOR TAX SAVINGS RELATED TO CHILD CARE
Working parents can trim their tax bill by using a couple of tax breaks tied to child-care costs. For starters, the federal government offers a tax credit to people who must pay for child care in order to work. Although low-income parents get the biggest break, the credit is available to all parents who meet certain criteria. Talk to your tax professional for more guidance.
In addition, many companies offer flexible spending accounts that allow employees to be reimbursed for child care costs related to any child under age 13. You must meet certain conditions, such as incurring expenses that are necessary for you to work.
CONSIDER FILING LATER
Filers who owe large amounts in taxes and who do not expect rebates might want to wait until April before filing their tax paperwork and sending in a check. The longer you can keep the money in your hands, the more interest you can earn on it. If you hate procrastinating, prepare your taxes early just to get them done, but avoid filing until later in the spring.
There are many ways to save on taxes this year, but the key to all of them is to start by thinking ahead and planning an appropriate course of action.