How To Save Taxes
All permanent residents of the United States are required to pay taxes. Unfortunately, How to Save Taxes 101 is not taught in schools. By doing some research in advance and a little planning, almost everyone can reduce their tax burden using at least one of the tips below.
- How to save taxes by going to school. There are several credits available to help parents and students with the cost of an education. With the American Opportunity Credit eligible taxpayers can qualify for a maximum annual credit of $2,500 per student. Generally, 40 percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes. The Lifetime Learning Credit can help pay for undergraduate, graduate and professional degree courses - regardless of the number of years in the program. Eligible taxpayers may qualify for up to $2,000 – $4,000 if a student in a Midwestern disaster area – per tax return. There is also a Tuition and fees deduction which enables students and their parents to possibly deduct qualified college tuition and related expenses of up to $4,000. This deduction is an adjustment to income, which means the deduction will reduce the amount of income subject to tax. The Tuition and Fees Deduction may be beneficial if a person does not qualify for the American opportunity, Hope, or lifetime learning credits.The credits mentioned above cannot be claimed for the same student in the same year. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit. For more information, see Publication 970, Tax Benefits for Education, which can be obtained online at IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).
- How to save taxes by contributing to charity. If your itemized expenses, including donations to charity, exceed the allowable standard deduction, you will save taxes by using your actual donation amount. The total of your itemized deductions is used to reduce your taxable income. Therefore, your taxable income--the amount of income that determines the amount of federal income tax you will pay--is reduced by the charitable contribution. Contributions must be made to an eligible organization. They can be monetary or physical. Of course, there are rules that apply so please visit IRS.gov and view IRS Publication 526 for more information.
- How to save taxes by selling low performing stocks. Getting rid of low performing stocks will potentially offset any capital gains taxes owed on selling winning stocks. Up to $3,000 of losses can be used on a tax return to reduce ordinary income after all gains are offset by losses. Any remaining losses can be carried over to future tax years. Please visit IRS.gov for more information.