Everyone wants to either make more money or save money. Bloggers and journalists go on an on about cutting cable bills or hobbies from your budget.
However, if you don't want to ditch the thing you enjoy in life, it makes sense to get wise about taxes. Here's what you need to know.
The government has several tax ”incentives” for people with modest incomes. They come in the form of deductions and credits.
A tax deduction lowers your taxable income.
Example if you make $20k and have a 500 dollar deduction the IRS treat you like $19.5k
A tax credit reduces your taxes owed
If you paid 1k and have a $500 credit, the IRS will refund you $500
Some Tax Credits are refundable, that means if you reduce your tax bill to zero, the IRS will pay you back more money than you paid in for the year.
A refundable tax credit is essentially ”free money” from the government.
If you qualify for a refundable tax credit, a significant planning opportunity is to reduce your tax bill down to zero using other deductions and credits, so you can get as much of the refundable tax credit refunded to you as possible.
Full list of income-sensitive tax credits
The key is to plan; many people miss out on getting the full value from tax credits because they wait until after Dec. 31.
When the year is over; not only do you have fewer options to reduce taxable income, you might not have the extra funds in the budget for tax planning.
Ironically many people miss out on extra money from the government because they can't afford to contribute to retirement accounts or HSA’s
With a little bit of pre-planning you could estimate the savings and possibly raise funds thought budgeting, side hustles, or may overtime at work.
Submitted August 31, 2018 at 11:41AM by Michael_Dinich https://ift.tt/2N21nPr
