How Can I Reduce My Income Tax Bill?

If you normally owe money during tax season, then there are likely some ways you can reduce your income tax bill. Even if you typically get a refund, you can often use the same methods to get more money back every year, though the exact rules tend to vary by country and by year. One idea is to make sure you are getting all the deductions to which you are entitled. You also should try to reduce your taxable income by putting money away in different accounts before it reaches your paycheck, because this allows you reduce the amount of income that is taxed. Additionally, you may want to consider any tax credits that may apply to you, because you can deduct the amount of the credit from your income tax bill.

One of the main ways of reducing the tax you pay is by making sure you have taken all the deductions for which you are eligible, and itemizing them rather than taking just the standard deduction. One typical deduction is the one you get when you give to charity; many charities offer receipts for donations, and you should keep any such receipts received, in case the government requires proof of your generosity. In addition, many of your bills throughout the year can be deducted, meaning your deductions may include the cost of car registration, mortgage interest and property taxes. You also may want to keep track of any expenses related to looking for a new job, because you can usually deduct what you spend for traveling, lodging, and meals during the job search as long as you are looking within the same industry as your previous position.

One way to avoid a high tax bill is to reduce your overall taxable income. If you have already tried to reduce your income tax bill with various deductions, then you may want to consider putting your money into accounts before it is taxed. For example, you can usually place a limited amount of money into retirement accounts the minute you get your paycheck, shielding it from taxes and possibly placing you in a lower tax bracket. Your employer also may offer a health savings account (HSA), into which you can put a specific amount of money from each paycheck to spend tax-free on medical expenses at a later date. Additionally, some employers offer an account into which you can place funds for childcare costs, which means you can pay for daycare for your children without paying taxes on the money.

Tax credits can reduce your income tax bill quickly, because the exact amount of the credit — rather than just a percentage — gets knocked off your bill. One way to get credits is to add energy-saving improvements to your home, such as additional insulation or solar panels. In many cases, taking college classes allows you to get tax credits, too, even if you take courses just for fun. If you plan to adopt a child, then you may find it helpful to know that many expenses associated with the adoption process are eligible for tax credits, which may offset some of the costs of adopting.