Save more receipts. That is how to pay less money on your taxes next year.
You wanted something more amazing didn’t you. So do most people, which is why they buy books and magazines and secret kits and then pay the same amount of taxes as they did last year.
This year try something different. Just save more receipts. When it comes time to file your taxes you won’t use any more lines on the tax forms for deductions, but you will be able to have higher numbers on the lines that you already use.
A Smaller Tax Bill
Wait ‘til next year. The most often used phrase in sports may also be used by many taxpayers this week as the stress and shock of filing federal income taxes wears off. Whether it was having to write the IRS a big check, or if it was seeing how your tax bill compared to others, or if it was just seeing the enormous number that you earned but never got to see thanks to paycheck withholding, it’s common to want to pay less taxes next year.
Paying less taxes is a goal that most Americans have. Yet, it is a goal that most of us fail at. The problem is two-fold. First, life happens. We get busy, we have other concerns, and pretty soon, the amount of money being sucked out of our paychecks each week or each month fades into the background noise until early next year, when once again, we are forced to remember how much money we lose each pay period to taxes.
The second problem is that even when we do manage to take action, it is often the wrong action. Huge books line the shelves at libraries and bookstores offering children’s fantasies to pay zero taxes, or to cut your tax bill in half. Others, simply promise to give you all the knowledge of a CPA or an MBA in 21 days, or whatever. The truth is that the answer to lower taxes does not lie inside the thick books, nor in some unknown trick carefully hidden in the dark shadows of finance and tax law.
The Tax Secrets Myth
Every year, literally millions of people examine the tax code, tax laws, and all of the tax changes to find ways to save money for themselves or their clients on taxes. Their findings are not kept a secret. Instead, they are propagated through advertising, publishing, and numerous other methods. However, it is in some people’s interest to continue spreading the myth that their are tax secrets, that you are a sucker who pays too much because you don’t know them, and if you would just buy their book, their kit, their package, their subscription, their service, their whatever, you too could pay zero taxes! As you can imagine, every one of these people has something to sell you.
Here is the little known truth about income taxes. Payroll taxes are virtually impossible to lower in any meaningful way.
Shocked? Don’t believe me?
Grab any tax tricks book, website, or article you want. Start reading. You will see all kinds of ways to do things about lowering your taxes, but look closer. You have to have something else first.
1035 Exchange? It’s great, but it only works on real estate.
A deduction you’ve never heard of before? Do you have to have a small business first? Or, does it have to be a certain percentage of your income before it counts?
Trusts? Works on assets, but not paychecks.
Off-shore accounts? Ditto.
What does work? The usual. Home mortgage interest, property taxes, state & local taxes, child care, child tax credit, student loan interest, tuition, capital losses/gains, dividends, IRA contributions, and charitable gifts.
Medical bills work, but only if they are at least 7.5% of your income, and then there are a bunch of miscellaneous deductions. These are the ones that people love to tell about that are “secrets”.
The truth is even if you tried to get every one, they probably would still have no impact on how much taxes you pay because they don’t count until they exceed 2% of your income. Did you subscribe to enough magazines, buy enough tax software, and drive to enough seminars to add up to 2% of your income?
Most people don’t. That is why they don’t know about those deductions. They don’t apply to them.
Which Deductions Can Normal People Get
When it comes to taxes, there is a standard list of tax deductions that are likely to apply to most people. Everything else is a specialized gimmie to a special interest group, or a political ploy to appeal to certain voters. In others words, it isn’t for you, and getting one of those deductions is likely to cost you more than you would save. Your best bet tax-wise is to not worry about these “secret” deductions.
If you are afraid that you won’t get one of the special tax deductions when you qualify, don’t worry. Someone will tell you. Someone will be so eager to tell you that you’ll know about it before you have even thought about any tax implications. Why? Because every finance or transaction professional in the world wants to have your business and they all have been repeatedly told that saving you money on taxes makes their service more valuable. So, when you go to sell a piece of real estate that might qualify for a 1035 Exchange (your home does not), trust me when I tell you that the real estate agent, the loan officer, and probably even the people at your bank will bring it up.