How to Avoid Common Tax Mistakes
Updated: Aug 10
When it comes to monthly bills, most people fail to take one of their largest expenses into account. While a mortgage or rent payment will be the largest monthly payment for a majority of people, taxes will come close for many Americans. That's why it's important to figure out ways to minimize your tax bill legally to get ahead. Avoiding some common tax problems can help you get ahead financially. 1. Tax Filing Status When you go to file your return, you'll want to choose the status that is most advantageous. In 2020, for example, you can deduct any medical expenses from your taxable income as long as they reach 10% of your income. If you're married and only one spouse can claim this deduction, it might pay to file separately. In most instances, it's just as beneficial to file jointly. Most filing programs will allow you to run the numbers for both options, and it can pay off to figure out which will help you the most.
2. Standard Deduction? If you're looking at minimizing your IRS bill, you'll want to look into whether itemizing your deductions makes sense. Most people will find that the standard deduction will maximize their savings. For 2019, the standard deduction was $12,200 for single filers and $24,400 for married couples who filed jointly. If you have a home mortgage or large medical bills, itemizing can make sense. Additionally, charitable contributions and state and local taxes can provide deductions that can make itemizing your deductions make sense. It always pays to do the math to see which option works best. 3. Save Money
If you're looking to minimize your taxes on your federal return, you'll want to save money for retirement. Contributions to common retirement accounts allow you to cut your taxable income. This means you should ramp up your savings in your 401(k) or IRA if you're looking to minimize your IRS bill. You can save up to $19,500 in a 401(k) or 403(b) and $6,000 in an IRA. If you choose the traditional option, you'll cut your taxable income on a dollar-for-dollar basis. For example, an income of $39,500 would become $20,000 if you saved the max in your 401(k). 4. Fund Your Medical Expenses If you're looking to cut down on your taxes, few options are as beneficial as a health savings account, more commonly known as an HSA. While you might fear the higher deductibles that are tied to using an HSA, you'll save money on your insurance premiums. You can also save on your taxes. Not only can you save money in an HSA, you'll owe no income taxes or FICA taxes on your contributions as long as you use them for qualified medical expenses. Few other options allow you to avoid paying these taxes.
If you're looking to minimize the amount you send to the IRS, these strategies can help you save money each year. You'll want to avoid taking deductions that don't apply to your situation. That could lead to penalties that cost you additional money. Therefore, getting tax help from a CPA can be a good idea. Accountants who file returns for their clients are knowledgeable in regard to laws related to the IRS regulations. To avoid making major mistakes, a CPA can provide the tax help you need to pay no more than legally necessary.