7 Quick Tax Tips for 2020 to Save Money
From claiming credits to maximizing your tax-deductible contributions, here are our top tax tip, just in time for April 15.
Managing personal Finance can be Confusing.Our Formal Education does not teach us Adequately for the World of Taxation,Investments and Assets.
A Taxation is a compulsory Financial Charge or some other type of Levy Imposed upon a Taxpayer by a governmental Organization in order to Fund various Public Expenditures.
Taxes are levied in almost Every Country of the World, Primarily to raise Revenue for Government Expenditures, although they Serve other Purposes as Well.
Many people think that once the earnings year has ended, their tax bill is final. But the good news is that there are many tax tips for 2020 that can help you save both money and time. From claiming credits to maximizing your tax-deductible contributions, here are our top tax tips, just in time for April 15.
TAX TIP #1: GET ORGANIZED
The changes to the tax laws from the Tax Cuts and Jobs Act of 2017 have changed the deductibility of certain expenses – such as home mortgage interest, state and local tax payments, etc. – so you want to make sure you allow yourself enough time to familiarize yourself with the new rules, if you are filing your own return.
If you are working with a tax preparer, you’ll want to make sure you gather all of the appropriate receipts and other important tax documents as soon as possible to give them the adequate time to work on your return.
TAX TIP #2: DON’T MISS OUT ON DEDUCTIONS
Many people take the standard deduction – a flat amount that everyone is allowed to deduct with no questions asked – because it’s easier. Plus, the Tax Cuts and Jobs Act created a higher standard deduction. The standard deduction for taxes filed in 2020 is $24,800 for married couples filing jointly and $12,400 for singles. If you think you can claim more than that, you could save by itemizing your deductions. This is especially vital for homeowners and self-employed individuals, who may be able to deduct more than the standard amount.
Some of the most common tax deductions are for charitable donations, mortgage interest and property tax and sales tax. One of the best tax tips for 2020 filings is to deduct medical expenses that exceed 7.5% of your adjusted gross income; this will rise to 10% for the 2020 earnings year, so deduct while you can. And self-employed filers will want to claim the home office deduction.
Here are our 10 most overlooked tax deductions. Claim them if you deserve them, and keep more money in your pocket.
- State sales taxes
- Hidden Charitable Deductions
- Reinvested dividends
- Student loan interest paid by you or someone else
- Refinancing mortgage points
- Support for a Parent
TAX TIP #3: CLAIM ALL YOUR ELIGIBLE CREDITS
What’s really the best 2020 tax tip? Don’t leave money on the table! While many Americans are expected to take advantage of the higher standard deduction instead of itemizing their deductions this year, don’t forget to look into any tax credits you might be eligible to claim.
Tax credits are more valuable than deductions on a dollar-for-dollar basis since they directly reduce the amount of taxes owed. Some credits are refundable, which means you can get money even if you don’t owe any taxes. The IRS estimates that 20% of taxpayers eligible for the Earned Income Tax Credit won’t claim it.
How tax credits work
A tax credit is a dollar-for-dollar reduction of the income tax you owe. For example, if you owe $1,000 in federal taxes but are eligible for a $1,000 tax credit, your net liability drops to zero. Some credits, such as the earned income credit, are refundable, which means that you still receive the full amount of the credit even if the credit exceeds your entire tax bill. Therefore, if your total tax is $400 and claim a $1,000 earned income credit, you will receive a $600 refund.
TAX TIP #4: AVOID PENALTIES AND INTEREST
The United States income tax system is a pay-as-you-go tax system, which means that you must pay income tax as you earn or receive your income during the year. Owing taxes is bad enough, but penalties and interest can make the financial pain substantially worse.
If you can’t pay the full bill, pay as much as you can when you file your extension, and then apply online with the IRS for a payment agreement, or include an Installment Agreement Request with your filing for the outstanding balance.
If you face a tax penalty for the first time, the IRS might be lenient.Remember, though, even if the IRS grants some penalty relief, you’ll still face interest charges on unpaid taxes.
So always file your 1040 on time, pay any taxes due with that form, and keep track of and pay enough estimated taxes on your other earnings. That will ensure that you won’t have to pay out any more money than necessary.
TAX TIP #5: MAXIMIZE YOUR TAX-DEDUCTIBLE CONTRIBUTIONS
Many of your everyday expenses can be itemized as deductions on your income tax return, saving you lots of money at tax time. However, unless you have a large amount of qualifying expenses, you might be better off taking the standard deduction, as most taxpayers do. Since you can decide every year whether you want to take the standard deduction or not, careful tax planning can help you maximize your deductions in years you itemize.
If you are currently maxing out your 401(k) – the contribution limit for 2020 tax filings is $19,500 per year – you have two additional options to consider. You may want to add a profit-sharing plan that would allow an additional tax-deductible contribution of $56,000.
Only certain expenses can be classified as itemized deductions. To maximize your deductions, you’ll have to have expenses in the following IRS-approved categories:
- Medical and dental expenses
- Deductible taxes
- Home mortgage points
- Interest expenses
- Charitable contributions
- Casualty, disaster and theft losses
TAX TIP #6: PROOFREAD YOUR RETURN
This isn’t just a tax tip for 2020, but for every year: make sure your return is error-free. The most common cause of processing delays is human error – typos. . Check your math, and always make sure you signed your forms. Keep a copy of the signed return for your records.
Making mistakes on your tax return can cost you money. You may miss out on a larger refund than you claimed, wind up owing more taxes plus interest and penalties. The best defense against these results is a good offense, namely avoiding errors on your return.
Ensuring your return is correct will get you any refund you are owed faster – and keep you out of the IRS’s sight lines for an audit.
Here are 4 of the most common filing mistakes people make.
- You don’t enter information as it’s been reported to you .
- You don’t enter items on the correct line.
- You don’t check for typos.
- You don’t bother telling the IRS how to handle your refund
TAX TIP #7: FILE ELECTRONICALLY
Of all our 2020 tax tips, this one makes your life the easiest. When you file using an electronic software – or better yet, hire a professional to file your taxes – you’ll have a built-in fact checker and proofreader. Plus, the IRS will confirm it received your return and check it to make sure it’s complete – two things they don’t do for paper returns. Most importantly, your return will be processed faster, meaning you get any refunds faster.