How to Save Money on Your Taxes in 2022

Tax season is coming up fast and many taxpayers are working on gathering their documents and filling out forms. The process of preparing one’s taxes can be quite complex and difficult. Luckily, it doesn’t have to be such a painful process. There are a number of tried and true ways to save money on taxes and make the process of filing easier.

In this quick guide, we’ll explore a few money saving tips that could benefit you during the tax preparation process. Check out our guide below!

Do you want to learn how to save money on your taxes this year? These eight tips for saving money on taxes are tried and true!

Clean Up Your W-4

The W-4 form is typically given to your employer for the purpose of determining how much money should be withheld from your paychecks throughout the year. There is no “right” amount to choose in terms of legality. You can completely opt out of having money withheld from your paycheck, other than the taxable amount applicable. Alternatively, you can choose to have a certain percentage withheld in order to ease the burden of how much you will owe come tax season, thus bumping up your tax refund.

If you had a particularly large tax bill last year and didn’t appreciate the sudden tax amount owed, you can avoid this problem by raising the amount of money withheld from your paychecks this year. We recommend doing this if your income hasn’t changed substantially from the previous tax year. Alternatively, if your tax refund was surprisingly hefty but you struggled with less money in your paychecks throughout the year, consider having less money withheld from your paycheck.

Keep in mind that you can change your W-4 at any time throughout the tax year.

Use Tax Prep Software

Doing your taxes manually is a thing of the past! Depending on your unique tax situation, you may not even need the help of a tax preparer. Platforms like Credit Karma offer free in-browser tax preparation software that will walk you through all of your possible tax requirements, thus saving you money and aiding in reducing your chances of being audited by the IRS.

Put Money into your 401(k)

If you have a 401(k) through your employer, you can use it to your advantage when it comes to taxes. Less taxable income results in less tax owed, as the IRS will not tax when you choose to divert from your paychecks into your 401(k). For 2021, you can push up to $19,500 annually into your account with an extra $6,500 for those over the age of fifty.

Just as well, many employers will match a portion of your 401(k) contributions, resulting in even more free cash in your pocket. Talk to your HR representative or tax preparer about how you can open a 401(k) if you don’t already have one through your employer.

Put Money into your IRA

Investment Retirement Accounts or IRAs are popular investment accounts used by taxpayers who don’t have traditional employment, such as freelancers or contract workers. You can open an IRA whenever you’d like without the need for employment.

You have two options when it comes to IRAs-- traditional and HOTH. A traditional IRA can be deducted from, but the amount that can be deducted depends on whether or not your are covered by a retirement plan via your employer. If you are covered, you may not be able to deduct your contributions. You can contribute up to $6,000 per year or $7,000 if you are over the age of fifty to your IRA.

Put Money into your FSA

You have the option of funneling untaxed cash from your paycheck into your FSA account every year. If your employer offers a flexible spending account, you can contribute up to $2,750 into it every year. You’ll need to use that money during the tax year for things like medical and dental costs, but in some cases, you may also be able to use it for non-prescription needs like breast pumps, bandages, medicine, etc. Ask your employer if your FSA carries money over into the next tax year.

Try to Get the Earned Income Tax Credit

You might be eligible for the EITC and not even know it. If you earned under $57,000 last year, you may qualify for this tax credit worth up to $7,000. There are a number of factors to consider, such as your marital status and your dependents. However, this on-the-dollar tax reduction can be very helpful in reducing your overall tax bill.

Be Mindful of Your Timing

Do you have an upcoming hefty expense? When you choose to spend a substantial amount of money can impact your taxes, especially if the purchase is tax-deductible. Consider whether or not it would be a good idea to have this expense on your current taxes or next year’s taxes. For example: This year, you had a sharp increase in your income that will result in higher taxes owed on your tax return. If you purchase the tax-deductible expense before December 31st, you could save a bit on your taxes for this year instead of next year when your income dips a bit lower and your tax bill is manageable.

Donate

Charitable contributions are often the go-to deductible for taxpayers who have hefty tax bills to deal with. Such contributions don’t even need to be cash, either. Donate things like clothing, food items, furniture, etc. to an official charity or nonprofit organization to lower your tax bill.