Simple Strategies to Cut your Tax Bill

None of us relishes the thought of giving the government our hard-earned money. Unfortunately, there may be times when we have no alternative. Some years are better (or worse, as the case may be) than others, and you could find Uncle Sam staring at you with his hand out on April 15th. But owing $300 is a far cry from owing $3,000, so be sure that you're taking advantage of each and every tax break the government says you're entitled to. Listed here are just a few simple strategies that could make a really big difference in your 1040's bottom line:

  • Tax credits are very valuable, even more valuable than tax deductions. Why? Because tax credit can be applied directly to the taxable amount you owe. In other words, for every dollar of tax credit you're entitled to, you can reduce your tax liability by one dollar. That's why credits are called 'dollar-for-dollar' reductions. Tax deductions, on the other hand, while certainly good, can only be subtracted from your taxable income. Therefore, it would take a considerably larger amount of tax deductions than credits to have the same bottom-line effect on your tax bill. There are numerous tax credits available to take advantage of; you may very well qualify for one or more of them.

    For example, working parents that must pay for someone to care for their children or other dependents may be eligible for the Child and Dependent Care Credit. Parents with college-age kids may be able to claim the HOPE- or Lifetime Learning education credits. And the Earned Income Credit is available to many lower- to middle-income single and married taxpayers. Again, these are just a few of the myriad tax credits available