Tax experts agree: You should take every legal deduction available to you. Failure to do so means you’re paying too much in taxes – and nobody wants to do that. While taxes might be as inevitable as death, there’s no reason to shell out more than you need to. While you might get some of it back later in the year in the form of a refund, you probably want your money now. Whether it’s filing at the end of the year or getting your paperwork together for tax season, your goal should be to avoid paying too much. Finance management software, and the information provided here, can help.
Not Knowing About Deductions
This is the biggie. People basically throw money down the toilet because they don’t know about deductions they are entitled to. No one expects you to be a tax attorney or an accountant (unless, of course, you are). However, you should have some familiarity with what deductions you are eligible for based on your career choices, home ownership and family situation. You might not ever get each and every deduction you’re entitled to, but you’ll get more if you take some time to educate yourself about what you’re allowed to claim. Online tax preparation software, such as Turbo Tax, can help you spot these deductions more easily
Wrong Exemptions Claimed
Even grown adults who have been working for 25 years are often confused as to how many exemptions they can claim. This leads to one of two problems: First, you claim too few, pay too much in withholding tax throughout the year and get a sizable chunk of money back in the form of a refund. That’s great and everything, but couldn’t that money be put to better use in a 401(k), 529 or even a savings account? The other side of the coin is claiming too many exemptions and owing a ton of money at the end of the year.
There’s no one-size-fits-all answer to this, but even so, personal finance and taxes don’t need to be difficult: Even claiming the “right” amount of exemptions can have you paying too much or not enough. However, in general, it’s better to get a refund than to owe. If you find yourself owing at the end of the year or getting a huge refund adjust your exemptions on form W-4.
The Ever-Shifting Landscape
One problem, particularly with tax credits, is that the landscape is always shifting around. For example, the much ballyhooed “green home” tax credits offered as part of the Obama stimulus package applied mostly to improvements made before the end of 2010, with some going as far as 2016. Credits claimed last year might not be valid this year. Further, you likely qualify for credits this year that didn’t even exist last year. It’s also true that the rules for similar credits change — for example how much you qualify for or what spending qualifies in the first place.
Nicholas Pell is a freelance writer from Los Angeles, CA. If there’s one thing he hates, it’s paying too much in taxes.
The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on your taxes, your investments, the law or any other business and professional matters that affect you and/or your business.