Taxpayers can save money on their taxes in 2022 by getting organized, taking advantage of every tax credit and deduction for which they are eligible and double-checking returns for accuracy before filing.
In short, taxpayers can’t cut corners if they want to save money.
How to Save Money on Your Taxes:
Follow these 13 expert tips on how to save money on your taxes this year to reduce your tax liability and avoid costly mistakes.
— Gather your tax documents.
— Get organized.
— Know when to hire a tax professional.
— Protect yourself against identity theft.
— Take advantage of tax deductions.
— Consider lesser-known tax credits.
— Properly claim dependents.
— Consider itemizing deductions.
— Contribute to your retirement.
— Contribute to other qualified accounts.
— Double-check your return for accuracy before filing.
— Adjust your W-4 withholdings.
— Prepare for next April.
Gather Your Tax Documents
Before you start the tax filing process, start by gathering any important tax documents and information. Many of these documents may be available digitally, according to Joe Buhrmann, a certified financial planner and senior financial planning practice management consultant at eMoney Advisor.
“Getting organized is the biggest part of the effort. Many of us have gone green in the last several years where employers are using online portals, (and) investment companies have gone digital where those tax forms aren’t being mailed to your home address, so being very proactive and going out and gathering those things is time well spent.”
Documents most commonly used to complete a federal tax return include W-2s and 1099s documenting any employment, freelance, self-employment or investment income earned in 2021.
[READ: Tax Prep Checklist: Collect These Forms Before Filing Your Taxes.]
Get Organized
Beyond those standard tax documents, this year taxpayers will need to check for correspondence from the Internal Revenue Service regarding the economic impact payments and advance child tax credit payments they may have received in 2021.
Taxpayers who received a stimulus payment in 2021 should have received Letter 6475, sent in late January, which only applies to the third round of stimulus payments. Taxpayers who received advance child tax credit payments in 2021 should have received Letter 6419, sent in late December, which notes the total amount of payment received and the number of qualifying children used to calculate the payments. Failing to review these letters might mean leaving cash on the table, as taxpayers are eligible for a rebate credit for any missing payments.
Don’t forget to also have your bank routing and account numbers ready to receive your refund by direct deposit, as well as the full names, birth dates and Social Security numbers of yourself, your spouse and any dependents.
Know When to Hire a Tax Professional
Once you’ve gotten organized and taken stock of the year, you may begin to realize your financial situation has become significantly more complex this year. While it may seem counterintuitive, spending money on a tax professional can end up saving you money in the long run if you’re able to avoid penalties or mistakes that are costly to correct next year.
[READ:Every Tax Deadline You Need to Know]
Protect Yourself Against Identity Theft
Take steps to prevent identity theft before it happens — and save yourself the headache and costs that go along with tax-related identity theft. Consider setting up multifactor authentication or an IRS identity protection PIN.
“In the past the IRS would give identity theft victims a PIN number, but now that’s available for anyone if you want to give yourself another layer of protection,” says Jerry Zeigler, an enrolled agent and SaverLife financial coach. ” They used to send it out by letter, but now you can access your PIN number online as well.”
Take Advantage of Tax Deductions
Though deductions on charitable contributions are typically limited to those who opt to itemize deductions, taxpayers are able to deduct cash charitable contributions of up to $300 if filing single and $600 if married filing jointly in 2021.
Consider Lesser-Known Tax Credits
Tax credits offset taxes owed, while deductions reduce how much income is taxable — making credits particularly valuable. Review commonly overlooked tax credits, like the earned income tax credit, the adoption tax credit and the saver’s credit.
The earned income tax credit, for example, is worth up to $6,728, and families with more children are eligible for higher credit amounts.
Properly Claim Dependents
Since many tax credits and deductions rely on the number of children or dependents a taxpayer claims, it’s important to properly claim each dependent. A dependent can be a child under age 18 or under age 24 if a full-time student, as well as a parent, sibling or other relative other than a spouse who qualifies.
In 2021, the expanded child tax credit for each dependent is between $3,000 and $3,600, up from $2,000 per child in 2020.
Consider Itemizing Deductions
Since the Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction amount, you’re likely to save the most money by taking the standard deduction. But individuals in a high-tax state who own a home and made significant charitable contributions in 2021 may save more money by itemizing their deductions.
To make itemizing worth your while, the deductions must add up to more than the standard deduction. For the 2021 tax season, the standard deduction is $12,550 if filing single and $25,100 if married filing jointly.
Contribute to Your Retirement
It’s not too late to save money on your taxes this year by making a contribution to a qualified retirement plan and getting a deduction for your contribution.
“Making a contribution to a traditional IRA will reduce their income for the year,” Buhrmann says. “They can put $6,000 in if they are under the age of 50 and $7,000 if they are 50 and older.”
[See: How to Reduce Your Tax Bill by Saving for Retirement.]
Contribute to Other Qualified Accounts
In addition to retirement contributions, review your other qualified accounts and make contributions where you’re able.
“There’s still time. If you are covered by a qualified high-deductible health plan and didn’t max out your 2021 contribution, you can still add money to that up until the tax deadline,” Buhrmann says.
Double-Check Your Return for Accuracy Before Filing
Take one final look through your tax return before you hit submit. Not only can filing a clean return keep you from experiencing IRS processing delays, but ensuring your return’s accuracy can also save you money by avoiding penalties or overpayments.
This year in particular, your tax situation may be more complicated than in years past. If you sold or exchanged cryptocurrency in 2021, received advance child tax credit payments or began working remotely from another state, ensure you’ve taken all the necessary steps to accurately report that information to the IRS.
Adjust Your W-4 Withholdings
If you received a tax refund this year or paid a hefty tax bill, talk with your employer about adjusting your W-4 tax withholdings. This can help you save money in the long run by boosting your tax refund or increasing your tax-home pay, depending on your goals.
Prepare for Next April
Much of the 2022 year is still ahead of us. After completing your 2021 return, consider what money moves you could be making in 2022 to make your life easier when it’s time to file in April 2023.
Taking actions now, like deferring income and selling investments at a loss to offset gains, could save you money next year.
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13 Ways to Save Money on Your Taxes in 2022 originally appeared on usnews.com
Update 03/04/22: This story was published at an earlier date and has been updated with new information.
