Preparing taxes can be frustrating and time-consuming. Fortunately, taxpayers can significantly cut down on their tax season stress by using some basic tax planning strategies that can help reduce their taxable income, while also potentially increasing their refund.
When taxpayers complete a return, they have to choose between the standardized tax deduction or the itemized tax deduction method when determining their taxable income. While the standard deduction uses a predetermined dollar amount that the taxpayer can automatically claim without having to account for expenses, itemized deductions take into account actual expenditures. For taxpayers whose purchases equal more than the standard deduction amount, the itemized deduction method is often preferable because the taxpayer will most likely pay less in taxes and receive a larger refund. The downside of the itemized deduction method is that it requires the taxpayer to submit documentation, such as receipts, that prove what was actually spent. For this reason, taxpayers who are leaning towards using this method should consider starting a filing system to save receipts and other important documentation.
Another way to reduce taxable income is to use tax credits. Some of the most popular tax credits include:
The earned income tax credit, for which low-income earners may qualify;
The child and dependent care credit, which applies when the taxpayer must pay for child care in order to hold down a job;
The child tax credit, which can save taxpayer up to $1,000 for each child under the age of 17 years old;
The retirement savings contributions credit, for which modest income earners may qualify;
The American opportunity tax credit, which can help offset the costs of post-secondary education; and
The solar-energy equipment installation tax credit, which allows taxpayers to write off 30 percent of the costs required to install solar panels
These types of refundable tax credits help reduce the amount of taxes that a person owes, but can also help increase refunds.
Tax season is already upon us, so if you have questions about how to reduce your taxable income or have other tax preparation concerns, please schedule an appointment with a member of the CORE financial team by calling 918-209-3441 to contact our Tulsa office, 405-288-1206 to reach someone at our Oklahoma City office, or 580-353-2376 to speak with one of our Lawton team members.