Studies have found that Americans do not understand the tax-paying process. If you are one of those people, you may be doing all the research that you can in order to figure out if you are doing it correctly. The last thing that you want to do is deal with the legal repercussions of filing incorrectly.
This can be a scary thing! Your goal is definitely to avoid the IRS coming after you, so what should you be doing and what should you be avoiding?
In this guide, we will walk you through a few different tips for tax paying!
Hire a Lawyer If You Need to Dispute
When you file your taxes, you were putting forth everything that you believed to be right about your income. If the IRS tries to dispute something with you, but you disagree, you are able to file a tax dispute back.
While you can do this on your own, it is not recommended as you may not do it correctly. If you are in Minnesota and you want to ensure that you win your dispute, there are lawyers in Minnesota for tax disputes that can help you do exactly that! Look for experienced lawyers who specialize in this case to make sure they already know the ins and outs of any tax-related disputes.
When you start to work with a lawyer, you can prepare a formal written protest. This is an appeal to the notice that you may have received from the IRS. If what you are appealing is below $25,000, you can simply have an informal small-case request. If the sum of money you want to dispute is larger than that, you are definitely going to need to work with your lawyer to file a lawsuit and challenge the IRS in court.
Do an Income Tax Projection
Before your taxes are due, you should always do an income tax projection to know how much you were probably going to owe in taxes that year. This prevents any surprises from coming up when it comes time to pay your taxes.
By giving yourself this extra time, you have wiggle room to earn more money and prepare for the upcoming tax season. This can reduce your stress around the time of paying taxes.
Try to Reduce Income Tax
Did you know that there are actually ways that you can try to reduce your income tax? To do this, you simply introduce your taxable income. But what does that mean?
Different things that you can do with your money to reduce how much income can be taxed by the government. For instance, if you contribute to a retirement account or another plan like a traditional IRA or 403B plan, you are reducing your income which is taxable. If you place an income into your account right away, it is technically not part of your taxable income. This will reduce your overall tax burden for the year.
In addition to today’s retirement accounts and other plans, you can also put money into a health savings account or a flexible spending account to reduce your taxable income.
Part of reducing your income tax also has to do with write-offs. If you were a business owner or an employee, you are able to write off different purchases that have to do with your business or your employment. For instance, if you need a computer for your job, you can write off a percentage of that as part of a business expense to reduce taxes.
Minimize Capital Gains
In addition to reducing your income tax, you should also try to minimize capital gains on investments. Profit on investments, the government will charge you based on these profits. Luckily, there are a few ways around this to reduce the capital gains that you are charged on.
- Only sell a portion of sales each year. Spreading it out over more time can reduce your tax burden
- Transfer appreciated assets to a charity to get rid of the capital gains tax completely
- Shift gains to Opportunity Zone funds to avoid paying the capital gain tax
Give More to Charity
Giving away part of your income to charity reduces your tax-deductible income. When you give away money to charity, you will get a tax break.
If you want to significantly increase your tax savings, you will want to use a strategy when giving more money to charity. The strategy is the bunching strategy. This means instead of giving a little bit each year, you combine the amount of money you want to give over a few years into one year and give it all at once. This will allow for more deductions in one single year rather than tiny deductions over multiple years.
Use a Financial Professional
If you are still confused about how to pay taxes properly and feel that you need help, you can always use a financial professional. These professionals are able to see all aspects of your finances in order to put together your tax filings. They know what they are doing and can reduce a lot of stress that you may be feeling about filing taxes!
However, it is important to talk to your financial professional about where you see your income going. Otherwise, they may take it upon themselves to reduce your income as much as possible. So if you do not want your money all going into an investment account, this is something that you should have a conversation about.
Follow These Tips When It Comes Time to Pay Your Taxes
Tax paying season can be a stressful time for everyone! Who really wants to pay more money to the government after they make it and see the money come to them? Probably not a lot of people.
And you especially don’t want to do it wrong to get in trouble with the IRS. By following these tips, you will have a much better chance of filing your taxes properly the first time. Do not worry – if you are stressed, you are not the only one!
Take a breath and follow this advice.