Beth Kobliner is a personal finance commentator and journalist, and the author of the New York Times bestseller Get a Financial Life: Personal Finance in Your Twenties and Thirties. Her new book, Make Your Kid a Money Genius (Even If You’re Not!), is on sale now from Touchstone, an imprint of our sister company, Simon & Schuster.
Here are some ideas that might work for you come tax time:READ MORE: Protest Over Masks In Schools Forced Jefferson County Public Health To Shut Down
If you don’t have enough deductible expenses to make it worth your while to itemize this year, take the standard deduction now and put off additional deductible expenditures until next year.
If you relocated for a full-time job, you may be able to deduct the cost of your move, including transportation, packing, and shipping costs. You don’t have to itemize in order to get this deduction. But eligibility rules are tricky. For a specific explanation of eligibility, check out IRS Publication 521, Moving Expenses, at irs.gov/pub/irs-pdf/p521.pdf.
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If you work and your spouse doesn’t, it generally pays to file a joint return. If you and your spouse both work, you should figure your tax on a joint return and on separate married returns to see which way saves money. (Annoying, but doing this could save you a lot.) Filing separate married returns may make sense if you have many deductible expenses that are subject to an “adjusted gross income threshold.” Say you and your spouse each earn about the same amount of money but you have exceptionally high medical bills. If you file separately, you can deduct medical costs that exceed 10% of your own adjusted gross income (about half the combined income, so you get to deduct more).
Changes in your personal life, as well as changes in the tax law, may result in your having too little or too much tax withheld from your paycheck. If you get married, buy a home, have a baby, or experience any other major financial life change, you should reevaluate your withholding.READ MORE: 3 Searchers Injured By Rockfall On Capitol Peak During Search For Missing Climber
If you receive a big refund from the IRS, you should probably increase the number of withholding allowances you take. Although receiving a cash windfall from the IRS feels great, it isn’t a smart financial move. The problem is that the IRS doesn’t pay you interest for the excess money withheld from your paycheck during the year. You’re better off withholding the right amount and funneling small amounts of cash into your savings account automatically throughout the year. That way you get forced savings plus earnings.
To find out how much you should have withheld, use the IRS Withholding Calculator at irs.gov/individuals/irs-withholding-calculator.
IRAs and 401(k)s are great tax-favored ways to save. If your tax rate is 25% or higher, you may also want to consider investments that offer some tax advantages, such as tax-free money market funds and I Bonds. While it doesn’t make sense to choose an investment solely for the tax break, it’s a factor to consider.
If you work for a company that offers you the chance to use a flexible spending account (FSA) to pay for child care or for medical expenses that aren’t covered by your insurance, sign up. Same thing with health savings accounts (HSAs), which cover out-of-pocket medical expenses. And, of course, contribute the maximum you can to your 401(k).
Listen up, musicians, actors, and other performing artists: Whether you itemize deductions or not, you may get your first big break from the IRS. That’s because you’re allowed to deduct business-related expenses (the cost of acting classes, head shots, costumes, etc.) from your income, if your adjusted gross income is $16,000 or less before this deduction. The rules about who can deduct these expenses are complex, so check the details in Instructions for Form 2106: Employee Business Expenses at irs.gov/pub/irs-pdf/i2106.pdf.
That’s because you may owe more in taxes by filing a joint return than by filing two single returns. The general rule is that if you and your betrothed earn about the same income, you will probably save money by marrying after the first of the year. If one of you earns much more than the other, it’s generally better to get married before the end of the year and file jointly.