Are you facing a hefty tax bill this year? If so, don’t panic — there are ways you can lower your tax bill and keep more money in your pockets.
Take Advantage: 15 Commonly Missed Tax Deductions
Last updated: Mar. 18, 2021
1. 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 different tax software programs, and many will let you file basic federal tax returns for free. And if you expect to owe taxes, every bit of money you save really counts.
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 money.
2. 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, Connecticut, noted that both the IRS and Congress make changes to the tax code right 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 whole 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, of course, 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, which 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 to exercise this option. But if you qualify, this is a good opportunity to exploit a tax loophole.
3. Look For Tax Savings Related to Child Care
Working parents can also 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. Again, your tax advisor can offer more guidance.
Many employees with children would be wise to take advantage of this type of account if their boss offers it, or to press their boss to start the new year off by adopting such a plan.
4. Consider Filing Later
If you expect a large tax rebate from Uncle Sam, you are probably eager to file sooner rather than later so you will get your check earlier.
However, filers who owe large amounts in taxes and who do not expect a rebate might want to wait until the tax deadline before filing their tax paperwork and sending in a check. The longer you can keep the money in your hands and out of Uncle Sam’s coffers, the more interest you can earn on it.
If you hate procrastinating, prepare your taxes early just to get them done, but avoid actually 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. Doing so will help you maximize the money you keep in your pocket this tax season.
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