Tax Dollars at Work…For You
The more money you have, the more you can affect your personal sphere of influence. This is an axiom. You decide what grocer to support, what kind of car you can buy (and afford), how much you want to give to charity and how best to invest your hard-earned dollars. It follows, then, that the less income you have to work with, the narrower your choices become. And while you may consider yourself thrifty, it’s far more effective to be aggressive when it comes to keeping as many of your tax dollars as you can.
Now, just to be clear, you should never endeavor to cheat your way out of a legitimate tax liability; this will only spell eventual disaster. But at the same time, you shouldn’t willfully give more than you’re legally obliged. Believe it or not, there are several common mistakes that even the shrewdest taxpayer makes. And these seemingly minor errors actually add up to quite a bit over a short period of time.
Examine Your Paycheck
If your employer withholds taxes, this saves you the trouble of estimating and paying them quarterly throughout the year. However, it’s easy to overlook just how much is getting diverted to Uncle Sam. A common misconception is that you should receive a sizable refund when you file your taxes. The truth is that a bigger check at tax time may be an indicator that you’re paying too much throughout the year. How much is withdrawn from each paycheck was determined by you when you began your employment. If you indicated too much be taken out for taxes, you’re essentially providing the government with an interest-free loan each year (which they return after filing season). Have a close look at your next paystub to see if you’re spending money that could go somewhere else, like your wallet.
By now, everyone knows that failing to obtain health insurance can be costly when tax season arrives. But there are a couple of scenarios you’ll want to consider before assuming you’re stuck. First, while you’re required to have a qualified health plan, you’re not obligated to choose any one provider. As such, it pays to shop around. Even if your employer offers coverage, for example, you might just have a cheaper option with a private provider. Alternatively, if your work and financial situation is dire, you may qualify for a health coverage exemption. In fact, there are a number of different exemptions for which you may be eligible. Even a penny saved is a penny earned.
Deduction and Credit Oversights
It’s easy to overlook important money-savers, particularly when you’re hastily preparing a tax return (who really wants to spend more time than necessary dealing with taxes?). A little legwork, though, can not only cut any tax bill, it can actually mean a bigger refund. If you don’t feel comfortable exploring these options on your own without making a mistake, talk to a reputable tax professional. Even if you pay for their service just this year, you can use this as a learning experience for future filing.
A silver lining to exercising some healthy philanthropy comes when it’s time to pay the tax man. If your donations were to a federally-recognized charity (see IRS.gov for details), you can take a deduction on your return. While this might sound like a minor addendum, it can make all the difference when you’re writing that check to the Treasury Department.
Regardless of your tax action plan, you may find it helpful to consult with a licensed tax professional. While it’s smart to scrape for every dollar you can get, you also don’t want to make an overzealous error. Creating a tax debt from a filing mistake truly defeats the purpose of looking for tax savings. Whether you’re preventing a problem or attending to one, though, a licensed tax professional is a good friend to have.