- 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.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

TurboTax Articles

Do The Math: Understanding Your Tax Refund

For most people, tax is collected by an employer at a rate that estimates your tax for the year. Your actual earnings and the deductions that you?re allowed to claim might cause you to pay too much tax, which leads the Internal Revenue Service to issue you a refund. "The idea behind a tax refund is quite simple," says James Windsor, a certified public accountant from Ann Arbor, Michigan. "When you pay more tax than you owe, the Internal Revenue Service returns the overpayment as your refund."

5 Tax Tips for Single Moms

If you?re a single mom filing your taxes, make use of tax credits and deductions that can help reduce your taxable income and reduce the amount of tax you pay. A number of strategies, credits and deductions can be used to reduce taxable income, and in some cases, allow tax refunds even if you didn?t pay in any taxes. When you use TurboTax, we?ll ask simple questions and handle these calculations for you.

5 Tax Tips for Single Parents

Filing taxes as a single parent requires coordination between you and your ex-spouse or partner. Usually the custodial parent claims the child as a dependent, but there are exceptions. A single parent is allowed to claim applicable deductions and exemptions for each qualifying child. Even though you claim your child as a dependent, she may still have to file her own tax return if she has income, such as from an after-school job.

Affordable Care Act Decoded

The health care reform law known as the Affordable Care Act may directly affect your tax liability. Many taxpayers are familiar with the requirement that most Americans either carry health insurance or pay a tax penalty. But that's just one provision, and knowing what else is in the law can help you avoid surprises come tax time.

Add a Comment

*0 / 3000 Character Maximum

2 Comments

Filter by:
Randy

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
c.mertz

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