Raising children can be expensive and it’s not getting any cheaper. One excellent place to start keeping more money for your family is to pay less in taxes. There are several ways to reduce your tax bill for the next year—and the earlier you start, the more money you will save.
Take Advantage and Learn about Every Tax Break for This Year
The IRS does not release information on how they will tax next year until the end of the year. You can learn about more tax breaks by carefully reading the IRS booklets for last year’s taxes, or talking to an accountant or taxman to see how to save more money. You may have overlooked some excellent avenues to save more money.
Keep Good Records of Your Spending
Having good records of where your money goes will help you fill out your tax forms easier and get more tax breaks. Divide your records into various categories such as education, investments, business, office, gas, business meals, gifts, etc., and record them.
Be sure to keep receipts for taxable items because the IRS may want to see your records and receipts one day—if they should ever audit you. Remember that the better and more accurate your records are, the more easily you can use them for various deductions.
Claim All Your Dependents
You can claim all your children as dependents on your taxes if they are 18 and younger. Full-time students can also be claimed up to age 24. Each one of your children claimed as an exemption reduces your taxes by more than $3,000 each.
TurboTax reveals that you can also claim other people, such as relatives if you provide more than 50 percent of their support. The Credit for Other Dependents will give you $500 per person. Note that this is a credit and not a deduction. A deduction reduces the amount of money you will pay taxes on, but a credit comes off the amount of taxes you owe.
The Child and Dependent Care Credit
Anyone can claim this credit and it does not matter how much you make, but it does reduce the benefit for people with larger incomes. TurboTax says that this credit is only available for care given in your home.
Money spent on providing care includes: care given for dependent children that are 12 or younger at year’s end; a spouse that cannot take care of themselves; or anyone that can be claimed as a dependent on your tax return if they cannot care for themselves. The provider of the services cannot include a spouse, a dependent on your taxes or any of your children under 18, or someone that is a parent of the person watched.
Invest in Your Child’s Education
Special approved savings accounts for your child’s future education can reduce your taxes. The most common one is the 529 Plan. Money put into the Plan is tax-deductible and withdrawals are not taxed when used for education. You retain control over the account. You can contribute up to $15,000 per year, according to MoneyUnder30. One possible downside is that it may reduce the size of any financial aid available to the child.
Claim Business Expenses
If you have your own business, which could be a sole proprietorship (you do not need to create any official documents or even have a business name to do this), there are many deductions you can claim. You could even start one just to get additional tax breaks. The IRS says that the primary requirements for a business are that you need to spend personal time in it and that you must put forth honest efforts to make a profit.
Having a business enables you to save a lot of money if you keep good records. Items that you can get deductions for include:
- Educational courses to learn more about your business
- Licenses (if needed)
- Specialized equipment
- Computer equipment and peripherals
- Office equipment (including cell phones, furniture, etc.)
- Vehicles (gas mileage, repairs, maintenance)
- Utilities (if you have a designated office and workspace)
- And more.
Max Your Contributions to Retirement Accounts
If you have retirement accounts, you can reduce your tax bill for next year by making contributions to them. Depending on the type of account, you can give up to the limit of allowable contributions and deduct them from your taxable income.
If you have a 401(k), you can contribute up to $20,500 (2022). People 50 and older can contribute up to $27,000. If you have a Roth IRA, you can contribute up to $6,000 annually and $7,000 if you are 50 or older.
Give to Charity Groups
The past two years allowed people to deduct $300 for contributions made to charitable groups (including churches)—even if they did not itemize. Although not sure if they will do it this year or not, if you itemize, it can reduce your overall taxes.
Besides cash, you can also contribute physical goods such as clothes, cars, sporting goods, books, stock dividends, and more. The IRS says that you will need to get a receipt for any contributions made—and only certain organizations qualify.
Claim Earned Income Tax Credit
The earned income credit (EIC) is based on your adjusted gross income. It means that it is calculated on your income after all deductions have been made. The lower you can bring your taxable income down with deductions, the more you can get from EIC. If you owe tax money, the EIC goes toward paying it, and the balance (if any) comes to you.
To qualify for EIC, you will need to be a U.S. citizen, have earned less than $57,414, and have made less than $10,000 from investment income.
Put Money into a Health Savings Account (HSA)
A health savings account is similar to a retirement account, except that the funds must be used for medical costs. When you reach age 65, the balance of the money can be used for any purpose.
The account earns tax-free interest until withdrawn, requires a high deductible ($7,000 for singles and $14,000 for families), and there are no taxes when used for medical purposes. Contributions are tax-deductible up to a limit: $3,650 for individuals and $7,300 for families in 2022. Contributions and interest in an HSA do not expire as they do in flexible spending accounts (FSA).
As you can see from the above items, the better records you keep, the more you will be able to save on next year’s tax bill. Also, there may still be plenty of time to add one or two of these items to your budget to save even more.
The Epoch Times Copyright © 2022 The views and opinions expressed are only those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.