Ways to save on taxes

There are several ways to save taxes in any given fiscal year. The earlier in the year one starts thinking and preparing about taxes, the more options one has to save on taxes. Lowering taxes can be achieved in every income bracket level with the right tax savings awareness and strategy. This article will demonstrate some of the possible steps that may lead to lower taxes in terms of 1) tax information, 2) common tax strategies, 3) lowering adjusted gross income, and 4) other non-income tax techniques.

Tax information

A good first step in saving on taxes is to have access to the right information. To gather the right information it can first be a good idea to estimate adjusted gross income, tax deductions and any tax credits one has in the case of 1040's, the standard U.S. Individual tax form. From there, one can determine what tax bracket one is in, for example 15 percent.

Tax information can be obtained from a number of sources including the U.S. Internal Revenue Service, county tax offices, tax accountants, financial advisors, tax attorneys etc. The difference between tax information and tax advice is that advice must be obtained specifically from certified and/or licensed tax professionals. The more pertinent information one has in regard to saving money on taxes the better because then one can apply that information to a tax saving strategy.

Tax saving strategies

There are several ways taxes can be saved either through a strategy, or tax savings tactics, or both. Tax strategy involves a long term tax saving plan such as annual contributions to either tax exempt or tax deferred retirement savings vehicles such as Individual Retirement Accounts (IRA's) and life insurance policies with retirement annuities built in.

In the short run, other tax methods that are commonly used are tax deductions in excess of one's qualifying standard deduction. In other words, if a tax filer can itemize deduction on Schedule A that are higher than the standard deduction, it has more tax savings than using the standard deduction. Items that are deductible on IRS Schedule A include mortgage interest paid, paid taxes, job expenses, charitable donations and miscellaneous expenses. (IRS Schedule A

Additional tax deductions that can be taken along with either the standard or itemized tax deductions include exemptions, education credits, child credits, foreign tax credits and savings credits, self-employment tax deduction, tuition deduction and student loan interest paid deduction. ( IRS Form 1040 ) For a complete list of deductions, consult the IRS forms and instructions.

Lower tax by reducing adjusted gross income

The key to saving money on taxes as an individual tax filer is to have the lowest adjusted gross income possible as this is the amount that is used to determine tax. Since deductions and credits lower taxable income, qualifying for deductions that don't cost money but either defer or allow money to grow tax free are ideal. For example, for a regular filing of a 1040 with no other forms required other than W-2's and 1099's, an income below a certain amount does not require tax filing at all, however if tax is due to that tax filer, a tax return should be filed to receive withheld taxes.

All income earned by an American overseas is taxable in the United States if that person is a resident of the United States for more than 6 months of the year. Some persons who don't live in the United States, who are American simply don't live in the U.S. and have all their assets, income and investments in foreign banks, trusts, or tax protected instruments. In some cases this may be legal avoidance of tax due to the U.S. Government, and in other cases it may not. Knowing the difference between legal and illegal tax savings techniques is key to complying with tax laws.

Non-income tax saving techniques 

Since income tax is not the only tax Americans pay, it can be prudent to consider other tax savings techniques as well. For example, tax on everyday items such as food, gas, property, automobiles, retail purchases, utility services such as cellular phones etc. all add a considerable amount of tax payments in excess of both federal and state income tax. Naturally, these types of taxes add up as well so avoiding having to pay them through legal tax saving techniques can also lower tax and increase disposable income.

To lower non-income tax consider making normal purchases via the Internet if the shipping and price together are less than the same item(s) would be had they been purchased retail with tax. Secondly, some states tax more for certain products such as gas and food. If one lives close to a state line consider making purchases for certain products with lower taxes in the other state if the cost of gas does not offset the tax savings.

Automobile and property taxes can also be quite high, in which case the lower the value of both, the less tax will be paid. Evidently then, driving one car instead of three, and driving an economic model of car, perhaps even used will minimize this type of tax paid. Secondly, for property tax on homes, consider living in rural areas rather than urban areas if the cost of tax is greater than the transportation costs to and from any pertinent locations such as places of employment, food stores, garbage dumps, entertainment venues etcs.

Lastly, to save even more on taxes, growing as much of your own food as possible on a rural property with low income tax in addition to driving a used economy model vehicle could save a bundle. Also, consider avoiding highly taxable services such as cell phones because they charge a great deal in additional taxes in comparison to land-lines Being as self sufficient as possible can reduce the need for a number of products and services, and hence taxes.

Summary

There are many ways to save taxes just as there are many types of taxes. Taxes are everywhere and are usually tied to things that are either consumed or income that is received. This is not to say there are ways to reduce these taxes because there are. In some cases only a few adjustments to where one puts money may be needed, but in other cases larger more definitive lifestyle changes may be required. Which ever the tax saving strategy or technique one uses, researching and learning as much information as possible about saving taxes is an important step in becoming aware of how to reduce taxes.

Sources:

1. http://www.irs.gov
2. http://www.irs.gov/formspubs/index.html
3. http://www.irs.gov/pub/irs-pdf/i1040sa.pdf
4. http://www.irs.gov/pub/irs-pdf/f1040.pdf