- Days left

5 Ways to Pay the IRS Less Next April

Cassandra Hubbart, DailyFinance
Cassandra Hubbart, DailyFinance
April 15 has come and gone, and most people have put another year of tax-return preparation behind them. But a recent Gallup poll shows that an increasing number of people believe they pay too much in taxes, with the fewest Americans since 2001 believing that the amount they pay is fair.

If you're still in shock from the amount of taxes you just had to pay, you should start working now to reduce your tax bill for April 2014 and beyond. Here are five ways you can get on track to write a smaller check to the IRS next year.

1. Put more money toward your retirement. The best way to shrink your taxable income is to save for retirement using IRAs, 401(k) plan accounts, and other tax-favored retirement savings accounts. This advice tops our list because the amounts you can save are big enough to have a real impact on your taxes. Those younger than age 50 can save $17,500 in a 401(k) plan this year and another $5,500 in an IRA. If you're 50 or older, those limits are even higher, topping out at $23,000 for 401(k)s and $6,500 for IRAs. Using them in combination can cut thousands off your tax bill.

2. Hold onto winning investments longer. When the stock market is rising, many people sell off their winners quickly to make sure their paper gains don't turn into losses. But that short-term mentality leaves you paying much higher rates on short-term profits, with some taxpayers losing more than half their gains to federal and state taxes. If you hold onto winning investments for more than a year, you'll qualify for much lower long-term capital gains rates, which can cut your tax bill on those gains in half -- or even eliminate it entirely for some lower-income taxpayers.

3. Take a look at tax-free municipal bonds. With interest rates as low as they are, paying taxes on the paltry amounts of income you can earn from bank CDs and most bonds just adds insult to injury. But especially if you're in a fairly high tax bracket, you'll want to take a closer look at tax-free municipal bonds for income. Right now, the muni bond market is in a somewhat unusual position in which yields are actually higher than what you'll get from Treasury bonds or FDIC-insured bank accounts, even before you take their tax advantage into account. So don't ignore municipal bonds as a potential source of valuable income as well as tax savings.

4. Boost your withholding. If you didn't have enough taken out of your paycheck last year, you not only had to write a big check at the end of the year but also might have owed penalties and interest. Pushing up your withholding to have enough money held back to avoid penalties is a smart move. Just remember that having too much withheld is also a mistake, as it essentially gives the IRS an interest-free loan from your hard-earned wages.

5. Get familiar with tax credits and deductions. The tax code has a wide variety of provisions that let you cut your tax liability, but if you don't know about them, you can't take advantage of them. Deductions and tax credits are available on expenses ranging from child care costs and donations to charity to spending on energy-efficient home improvements, so be sure to take maximum advantage of the spending you're already going to do this year.

Get Started Today

The longer you wait to take these tax-saving steps, the harder it'll be to get everything done in time to avoid another big tax bill next year. If you act now, it will be a lot more painless, and the results will be much more to your liking when tax time rolls around again.

Increase your money and finance knowledge from home

What is Inflation?

Why do prices go up?

View Course »

How Financial Planners go Grocery Shopping

Learn to shop smart and save.

View Course »

TurboTax Articles

Cities with the Lowest Tax Rates

The total amount of tax you pay reaches far beyond what you owe the federal government. Depending on where you live, most likely you're required to pay additional taxes, including property and sales tax. The disparity between the amount of tax you pay in a low-tax city and that in a high-tax city can be dramatic. Living in any of these 10 cities could save you a bundle, although the exact amount may fluctuate based on your income and lifestyle choices.

Cities with the Highest Tax Rates

Much ado is made in the press about federal tax brackets, but cities can carry a tax bite of their own. Even if you live in a state that has no income tax, your city may levy a variety of taxes that could eat away the entire benefit of living in an income tax-free state, including property taxes, sales taxes and auto taxes. Consider all the costs before you move to one of these cities, and understand that rates may change based on your family's income level.

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as a deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

A Freelancer's Guide to Taxes

Freelancing certainly has its benefits, but it can result in a few complications come tax time. The Internal Revenue Service considers freelancers to be self-employed, so if you earn income as a freelancer you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes in the form of the self-employment tax. Here are things to consider as a freelancer when filing your taxes.

Tax Deductions for Voluntary Interest Payments on Student Loans

Most taxpayers who pay interest on student loans can take a tax deduction for the expense ? and you can do this regardless of whether you itemize tax deductions on your return. The rules for claiming the deduction are the same whether the interest payments were required or voluntary.

Add a Comment

*0 / 3000 Character Maximum


Filter by:

I just found out from a friend last night something very interesting. He told me that he has not paid any federal income tax for 12 years. He said it can be proven and has been proven that there is a federal law still on the books that says the the federal income tax was recinded in 1954. There is no requirement that you have to pay it but the goverment has continued to tax the people since. There is a movement led by several people to get the word out about this. Of coarse I'm going to look into this and do some research. I was given names and numbers to call to get verification. My friend says do you see me in jail? I was told that he had been threatened will penalties etc. and then offered to pay at a reduce amount but he has not. He told me the very rich who have found out about this have paid zero taxes for years. I know I'm fed up with the present goverment and both parties taking care of their rich friends and giving millions of our tax dollars to countries overseas playing games with our tax money while the economy and our country continues to go down the drain.

April 22 2013 at 1:35 PM Report abuse rate up rate down Reply

There are hundreds of ways to save on your taxes. Just don't get caught.

April 22 2013 at 8:34 AM Report abuse rate up rate down Reply