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  • Writer's pictureHarry N. Stout

86- Cash Tip: Moneytime – Maximize Your Tax Breaks

Updated: Jan 15, 2021

Could you use more cash each year? It’s that time of the year again. Time to file and pay your Federal, state and local income taxes. In my opinion, income taxes are one of the most overlooked expenditures. They can take 10% to 40% of your hard earned cash, depending on how much you make and what type of income it is. Do you actively manage what you pay in income taxes? I don’t think people spend enough time managing this major outlay.

Always remember that it is best to consult a qualified tax professional to help you do tax planning and with the implementation of any tax savings strategies. But even without the help of a professional, there are a number of things you can do to reduce your income tax outlays. Here are five ideas for you to consider.

  1. Try to do your own taxes. For most people, this is a task they can do using today’s reasonably-priced tax return preparation applications. I personally use Turbo Tax and have done so for over a decade. These applications will walk you through the process of completing the returns and will ask all the necessary questions to make sure you do not miss reporting all needed information. For example, the applications will take you through all deductions to make sure you get every deduction to which you are entitled. They also run through all sources of income to report. For most people, preparing their own return or just answering the questions needed to complete the return will be an eye opening experience. It will significantly increase your awareness of tax-related issues and how you might be able to reduce your tax bill.

  2. Take advantage of the major middle class tax breaks of IRAs, 401k’s, Health Savings Accounts and 529 or College Savings plans. I have written extensively on these tax breaks in prior posts. Please read them again to see the value each can bring to your financial life.

  3. If you are self-employed there are special rules that you should discuss with a tax professional. For example, these rules may allow you to deduct certain expenses and make larger contributions to retirement savings plans.

  4. Learn about the special tax treatment of medical expenses, college loan interest, tuition payments and continuing education costs. There are special provisions that can benefit you.

  5. Adjust your income tax withholdings to comply with the new W4 form requirements. You may surprise yourself by properly adjusting your withholding taxes based on your current situation.

Required income tax withholdings and estimated tax payments consume a large portion of most people’s budgets. You need to spend time making sure you do not pay more in taxes than you are required to pay. Consult a tax professional to help you get on the right track. You may find more available cash in the process.


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