Tax rules can be complicated but taking some time to know and use them for your benefit can change how much you end up paying (or getting back). Here are some key tax planning concepts to understand and use as we draw near the IRS deadline:<\/p>\n
1. Tax Deductions vs Tax Credits<\/strong><\/p>\n Tax deductions\u00a0are expenses you\u2019ve incurred that you can subtract from your taxable income. Charitable contributions, business use of your home, and medical expenses are all deductions just to name a few.<\/p>\n Tax credits\u00a0give you a\u00a0dollar-for-dollar reduction in your tax bill. A tax credit valued at $1,000, for instance, lowers your tax bill by $1,000.\u00a0 For example, claiming a child\/dependent on your tax return will earn you a tax credit.<\/p>\n 2. Taking the Standard Deduction vs. Itemizing<\/strong><\/p>\n What is the standard deduction? What does ‘itemize’ mean? 3. Tax Strategies to Cut Your Tax Bill<\/strong><\/p>\n Put money in a 401(k) Put money in an IRA
\nBasically, it\u2019s a flat-dollar, no-questions-asked tax deduction. The amount depends on your filing status (single, married filing jointly, etc.)<\/p>\n
\nInstead of taking the standard deduction, you can itemize your tax return, which means taking all the individual tax deductions that you qualify for, one by one.<\/p>\n
\nYour employer might offer a 401(k) savings and investing plan that gives you a tax break on money you set aside for retirement.<\/p>\n
\n\u00b7 In a traditional IRA, your contributions may be tax-deductible.
\n\u00b7 With a Roth IRA, your withdrawals in retirement are not taxed.<\/p>\n