A Tax Expert Shares Her Best Advice for Lowering Your Tax Bill Before You File
GOBankingRates’ Live Richer Speaker Series is an exciting opportunity for me to introduce the financial experts and influencers in my network to a wider audience, and get invaluable tips and advice about everything from taxes to investing. The program was kicked off with a presentation from Kathy Pickering, H&R Block’s vice president of regulatory affairs and executive director of The Tax Institute, who answered your most burning questions about taxes.
When is it worth to pay someone to prepare your taxes?
From my perspective, it’s always worth it to pay somebody to prepare your taxes. That said, whenever you’re going through a significant life change, that’s the time when you want to consider getting help with your taxes. So, if it’s the first time you’re filing, you want to work with a professional and get that objective advice and get educated on what are the things that you need to know. Then, whenever you have a big change like buying a house, getting married, having a baby, those kinds of things really have a lot of tax implications, and you don’t want to miss out. So that’s a great time to get help.
How can I lower my taxable income?
For lowering your taxable income, you still have one more thing that you can do before the tax deadline, and that’s contribute to an IRA. That’s a really cool thing. (You can contribute) up to $6,000 if you’re under 50, up to $7,000 if you’re over 50, and that’s taking that money off the top, so it’s lowering your taxable income — and you’re saving for retirement, which is really good thing to do.
What are the most common tax deductions that everyone should take advantage of?
Some of the most common tax deductions are dependent on where you are in your life. If you have kids, you need to be looking at all of the opportunities to claim, (including) childcare expenses and the child tax credit. If your child is older than 17, there’s now the new other dependent credit. There are a lot of child and family credits that are available. If you’re in school, there’s the American Opportunity Credit for the first four years of college. That’s up to $2,500 to help offset your tuition expenses. And now with tax reform, there’s this new 20% business income deduction that’s available for self-employed, freelancers and small business owners. There are a lot of different things that you need to get smart on depending on what your situation is, because you don’t want to miss out.
What’s the no. 1 thing you should not do when filing taxes?
The no. 1 thing that people should not do when it comes to their taxes is not file. We hear so many times, “I didn’t make enough money,” or “I think I’m going to owe,” or “I’m afraid so I’m not going to file my taxes.” The penalty for failing to file your taxes is so much higher than failing to pay your taxes. Even if you can’t pay, go ahead and file your tax return. You can always make up a payment plan later, and it will help keep those penalties low.
Learn More: The Complete Guide To Filling Out Your W-4 Form
What is the main thing full-time employees with some freelance income should know when it comes to taxes?
If you are a full-time worker, you’re getting your payroll taxes withheld from your main job from your main employer. If you’re doing some freelance on the side, what you may not know is that you’re also going to have to pay taxes on that freelance income. So either you want to bump up what you’re getting withheld from your regular paychecks so that you don’t have to balance out your freelance, or start making some estimated projections and payments on your freelance income. That money that you’re getting on the side isn’t having taxes withheld, so you’ve got to plan for that.
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Gabrielle Olya contributed to the reporting for this article.
Last updated: April 28, 2021