How to Save Money on Income Tax

It is possible to save money and not have to pay those huge income tax assessments.

While paying income tax is something that we can't get out of doing, no one wants to pay more than they have to.

In fact, it is wise to take a critical look at the amount of tax you pay and see how to reduce it. This is not dishonest.

There is no need to pay Uncle Sam any more than is legally required. Here are a few ideas to consider, to prepare for next year's filing and help save money.

One way to reduce your income tax is to be taxed on less than you make. How can you do this legally? It's simple. Participate in that retirement fund your employer sponsors. If it is a 401k plan or a 403(b) plan, you can put in a whopping $15,500. Your employer deducts this amount - or whatever you decide to contribute - before your taxes are calculated, so you won't be paying tax on that amount.

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If you are over 50 years of age and have not contributed much to a (401k) retirement fund - or even if you have - then you are in luck because it is possible to make a catch-up "contribution" of up to $5,000. Since this also reduces your pre-tax gross income, you will pay less income tax.

Most people know that if they give to a charity, it is tax deductible, but this also applies to goods and services. So if you have items you don't want, you can donate them to charity, get a receipt and claim it when calculating your income tax. The same goes for services; just be sure you get a receipt. Every little bit helps you to save money.

Your employer may also sponsor a flexible spending plan for child-care and certain medical expenses. It will pay you to participate in this program, as once again, your employer will deduct this amount from your pay before calculating your income tax.

Making solar improvements to your home will gain you certain income tax benefits, up to a value of $2,000. Make sure this tax benefit is applicable to your improvement before you go ahead. This idea will help save money on your tax bill as well as your utility bill.

Itemized Deductions Can Save Money

Whether you prepare you own tax returns or have an accountant do it, you may save a considerable amount by using itemized deductions. You can accept the flat amount offered - which was $5,350 for 2007, or you can itemize. This is certainly worth looking into, particularly if you have a mortgage, because the interest you pay is an allowable deduction for most people. This is usually enough to put you over the limit and make itemizing worthwhile. Real estate taxes (but not added charges like garbage pick-up), and state and local taxes are also deductible.

The IRS has provided more information on Who Should Itemize

The 'Budgeting' area of this site has an excellent collection of articles on how to save money.

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