You want to pay less in taxes in 2020 — who doesn’t?
Good news! As long as you’re willing to do your research and take smart, proactive steps toward financial responsibility, you can reduce your tax liability considerably.
Here are a handful of avenues to explore now to make 2020 a little less painful when it comes to paying taxes.
Retirement plans
You can contribute to a retirement plan to reduce your taxable income. Make contributions to an individual retirement account (IRA) throughout the year to earn tax advantages for retirement savings — you can ask your local banker or financial advisor all about it.
A 401(k) is a similar retirement account established by an employer that allows a portion of your paycheck to go toward retirement. Many employers offer 401(k) matching as an automatic benefit — for others, you have to opt in.
Children and education
You can claim a child tax credit (CTC) for each child under the age of 17 who is a citizen. This can apply to your stepchild, foster child, adopted child, or any child you claim as a dependent on your tax return. Just make sure you qualify for a child tax credit and follow through on your 1040 form.
That’s not all: If you’re into playing the long game, you’ll be glad to know that a 529 college savings plan is a great way to save money for your kids’ higher education while helping you pay less in taxes.
Though the contributions aren’t deductible at the federal level, many states allow deductions, and you withdraw that money without incurring a tax penalty when the time comes to pay for college.
Donations to charities
If you make donations to qualifying charities and keep the receipts, you can deduct these from your tax return.
There are more than a million public charities and more than a hundred thousand private foundations, so take your pick! Just be sure to itemize your charitable deductions on schedule A in your 1040.
Homeownership
If you’re a homeowner, you likely already know that you can deduct mortgage interest and property tax payments.
Did you know that you can also get an energy tax credit by making eco-friendly improvements? Installing solar panels, for example, is just one of several improvements that qualifies for a tax credit. Smaller projects like installing a new exterior door can help you save even more.
Side hustles
If you have a hobby that has the potential to become a side hustle, you might even consider turning it into a side business. You’ll earn more taxable income from your side business, of course, but you can also explore the tax benefits and deductions of having a small business. Be sure to keep your paperwork up to date and keep every single invoice!
The bottom line
Be sure to pay your taxes on time to save money in penalties. If you’re doing your own taxes, use modern tax software (free tax filing online). Consider consulting with a tax expert or an accountant for professional advice and to make yourself as tax efficient as possible.
