Career Advice - A Community Blog

Erik Larson writes about the job market, resume improvement, and career advice

Guide to Saving Money on Your Federal Income Taxes

Written by Erik Larson, Community Blogger | Dec 3, 2017 3:32 PM

Paying taxes is something all people have to face. The goal should always be to only pay what is necessary as well as taking all legal deductions. Every person's situation is different. Tax industry professionals recommend developing a plan to handle taxes. This is a good way for a person to minimize the impact of taxes in their finances.

Fund Retirement

When trying to benefit from paying lower taxes, a person may want to consider opening an IRA. It is possible to deduct some or all of the contributions to an IRA depending on circumstances. This could be determined by a person's income as well as if they are participating in a retirement program where they work. It is possible for a person to place as much as $5,500 in an IRA, and if they are 50 or older, the amount may be as much as $6,500.

Bundle Contributions

A tax professional would be able to help a person interested in some extra tax savings to bundle certain charitable contributions. It is possible for a taxpayer to have deductions amounts for two years placed into a single year. It would require vaulting deductions over a standard threshold. This will make it possible to use any type of small deduction that could be forgotten. This can include deductions for church, clothing donations and more.

Employment Relocation Costs

Many people are required to move when they accept a new job or must relocate with a current employer. If this relocation is over 50 miles from a person's original residence, they may be able to deduct the cost of the move. This could be possible even if a person does not itemize on their tax return. It's also possible to qualify for a deduction for driving a vehicle to a new location. Parking and toll costs may also be deductible.

Child-care Reimbursement Account

Many tax experts recommend their clients pay child-care expenses with their pre-tax dollars. If someone has a child-care reimbursement account provided by their employer; they can use pre-tax dollars. It is possible to save as much as a third or more of costs associated with childcare. Doing this could help a person avoid paying Social Security taxes as well as income taxes on these amounts.

Increase Energy Efficiency

There are numerous government programs at the local, state and federal level designed to provide tax credits to taxpayers for making their homes more energy efficient. This could include everything from installing new doors, windows as well as insulation and more. Some programs even provide tax credits for having specific cooling and heating systems installed in a home. In many cases, tax credits are available for the installation of alternative energy sources such as solar panels.

Make Vacation Home to Principal Residence

The IRS permits a single homeowner to get as much as $250,000 tax-free profit from selling their home. Should the home be sold by a married couple, they could be permitted to have $500,000 in tax free profit. It's possible to extend this tax benefit to cover any profit received from a second home. This will require a homeowner to make the second home their primary residence two years prior to the sale.

Worthless Securities

Tax professionals often recommend clients carefully review their portfolio for any securities that have become completely worthless. It's also important to know if any companies they have securities from filed for bankruptcy. In both of these situations, it may be possible to deduct the loss. In most situations, a person may have up to seven years to identify these securities in their portfolio.

Job Hunting Costs

It possible for a person who looks for a position in their same line of work to deduct all the expenses associated with job hunting. A person is unable to do this if it is their first job. These deductions can include costs for transportation, food, lodging and other job search related expenses. These costs should be identified as miscellaneous expenses.

When a person is able to speak about their tax situation with a tax professional, they can learn many ways to significantly decrease their tax burden. "It's important for people to pay all the taxes they owe, but it's also important they get all the deductions they are legally entitled to take," accountant Paul Miller.

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