5 Money Saving Tips on Income Taxes — The Kind Tips - Tips for Life, Study, Work and Entertainment

5 Money Saving Tips on Income Taxes

5 Money Saving Tips on Income Taxes

It is clear that nobody likes to pay income taxes, but it is definitely a necessary thing to do. Although you may not be willing to pay the taxes, the income taxes do play a huge role to help everyone live a better life in programs such as critical infrastructure, social and education programs, national defense, etc. But if you want to save some on the income taxes, here are five tips to trim your income tax bill. Just try them out and if you get luck, you get a refund!

1. Save money with employer-sponsored retirement fund.

Contributing to your employer-sponsored retirement fund is a good way to save money on your income tax bills. When you do this, your employer can deduct your contribution out of the gross pay when the income taxes is not calculated. Your income tax to pay can be reduced because your gross income reduces! Since the year of 2007, the maximum contribution that an individual can make is $15,500 each year (to a 401(k) or 403(b)). The number has been adjusted as a function on increased cost of living index since 2007.

2. Make catch-up contributions.

For people over fifty years old, a catch-up contribution can be made to your employer-sponsored retirement account. Such catch-up contributions can reduce your pre-tax gross income, which means you can pay less tax income. In the year of 2007, you can contribute as much as $5,000 as with regular contributions. However, the cap has also been adjusted with the changing in cost of living index after 2008.

3. Clean your closets and make donations.

You can also find out a weekend and clean out the closets. Gather your old clothes and donate them to Goodwill, The Salvation Army or any other charitable organizations. Please make sure you have their receipts. Such charitable donations in terms of cash, goods or services are deductible.

4. Contribute to energy efficient and solar power home improvements.

Thanks to the Energy Policy Act of the year of 2005, if you invest in certain energy efficient home improvements or install solar power equipment, then you are eligible for up to $2,000 tax credits. This is a real dollar-to-dollar reduction for you owned income taxes and more importantly, you also make contribution to the environment by using cleaner and reusable solar power.

5. Take part in employer-sponsored flexible spending plan.

If you pay the child care expense or if you have out-of-pocket medical expense for over-the counter medicines, co-pay, or medical equipment or any other similar items, you are able to submit the receipts to get reimbursed with a pre-tax contributions from a dependent flexible spending account for care or medical care flexible. Your employer will deduct a certain part from your paycheck and hence your gross income is reduced, which decreases the amount of money to be taxed. Eventually, your overall federal income tax is reduced!

*Image source: http://ownthedollar.com/2010/05/demystifying-taxation-basic-overview-federal-income-taxes/.

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