Commonly overlooked tax savingsThis content is categorized as:
Tax season is upon us, but before you file, take the time to help make sure you’re not paying more than you owe. If you’re among the Americans who typically only take the standard IRS deductions instead of itemizing on your 1040, you may be missing out on some money-saving tax deductions or credits that you’re eligible for. Keeping these three factors in mind may help you save more on your next tax bill.
You may already know that you can deduct donations of money or goods, but most taxpayers often don't deduct enough. That's because many of us fail to keep detailed records tracking our donations throughout the year. Whether you dropped off a bag of clothing at a local charity or donated $5 at the register of your grocery store, you’ll want to keep track of all of these contributions to ensure that you get the highest tax benefit. If you didn't track this last year, sit down now and do your best to account for as much as possible. And don't forget, you may be able to include transportation costs in service to a charitable organization (like dropping off those donations or getting to and from a charity event or volunteer day). Then be sure to pay closer attention to donations this year and keep record of all contributions.
Reinvested dividends come from dividend payments for stocks and other securities and when you reinvest your dividends, you will still pay taxes as though you received them in cash. Qualified dividends, which are those held for a specific time, are taxed at a lower capital-gains tax rate (visit irs.gov to find out what qualifies as a dividend). This isn't exactly a deduction, but you may be able to cut down on your tax bill through good record keeping. When reinvesting dividends, add this amount to your basis in the security. By tracking the basis, you can reduce your capital-gains tax if you sell the security at a higher price.
Earned income tax credit
The Earned Income Tax Credit (EITC), designed to supplement wages for low-to-moderate income workers, may or may not be on your radar. This tax credit shouldn’t be overlooked since it can reduce the amount of federal income tax you owe. During 2021, 25 million eligible workers and families received around $2,411 of EITC. The credit amount will depend on your income, marital status and number of children; where families with more children are eligible for higher credit amounts.
Consult your tax advisor to discuss ways to maximize your tax savings and ensure you take advantage of all the available deductions and credits that match your situation. Going forward, you’ll know which factors can help lower your tax bill and how your tax return can be a useful tool in helping you see where you are financially.
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Any information regarding taxation contained herein is based on our understanding of current tax law. The tax and legislative information may be subject to change and different interpretations. We recommend that you seek professional legal advice for applicability to your personal situation.