7 Ways to Lessen the Impact of Paying Taxes

February 7, 2011 | Author: | Posted in Saving

Not too many people like paying taxes, even though they realize that it’s an important and necessary part of life. It funds schools, the military, and many important services. Even though it’s a necessity, often times we aren’t clear on what’s deductible and what’s not.

Of course, there’s also the realization that taxes seem to be high and that they don’t always go for the kinds of things that they really should go for. You could make a lot of arguments about why you don’t want to pay, but the bottom line is that taxes are required from anyone who has an income.

Fortunately, there are ways to lessen their impact.

Here are 7 ways to help you.

1. Know your tax bracket and your standard deduction so you can determine whether you’ve made enough charitable contributions in order to itemize deductions. You can save money that way, if you’ve donated to charity at a particular level.

2. Give to charitable organizations. You don’t have to give cash, especially if you don’t have much money. You can donate clothing or other items that are in ‘good used’ condition or better- there are even charities, such as Kars4Kids, who can take the bigger items (like cars) off your hands for a good cause.

You can also donate your time and write off the mileage to and from your charitable activities. If you have to purchase something, like specific clothing, for a charitable act like volunteer work, you can also deduct that. Just make sure that you’re working with a legitimate charity, or what you do might not qualify.

3. You only have to worry about how much you can donate if you’re planning on giving more than 20% of your income to charity. If you do that, you’ll have limits that might apply to you. Be sure to consider those.

4. Keep good records. Records are vital, whether they’re for charitable contributions, home improvement deductions, medical costs, income, or anything else you do. No matter what goes on in your financial life, if it might relate to your tax situation you want to keep a good record of it. That way, you’ll have proof if the IRS asks.

5. If you work for an employer, make sure that you claim the right deduction on your W-2. If you do, you won’t end up suddenly owing a bunch of money at tax time, and you may even get a small refund.

6. If you’re self-employed, be sure to pay your taxes every three months. If you don’t, you could be hit with a huge tax bill when you file in April, and you may even have to pay penalties because you didn’t pay tax throughout the year.

7. Budget for taxes all year long, so you aren’t paying out a large chunk that you really don’t have when April 15th rolls around. If you don’t use all of the savings, it’s there for something else.

Taxes stress a lot of people out, but they don’t actually have to be that way. If you plan ahead, keep good records, and talk with a tax professional if needed, you shouldn’t really have much of a problem getting through tax time.

You’ll be glad you were prepared when you can handle your taxes easily and then go on to something else.

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