Becoming tax savvy
If you earn money, you are required by law to pay taxes on it. But you can also benefit from legal deductions that help you save money. Here are some guidelines to keep in mind:
- Ensure the right amount of withholding. Having taxes withheld from your paycheck enables you to pay taxes a little at a time. That way, you’re not hit with a big tax bill in April. Make sure, however, that you're not having too much taken out. If you receive a large refund at tax time, this means you've basically loaned the government that money, interest free.
- Compare itemized vs. standardized deductions. When you file your taxes, you can choose between itemized and standard deductions. Itemized deductions are those that you add up yourself. The standardized deduction is a lump sum that the government allows you to take. Use whichever deduction is greater.
- Maximize your deductions. Itemizing your deductions can take time. However, if you'll save more from itemizing, it can be worth it. Do your research to make sure you take every deduction allowed.
Some common tax deductions include:
- Tuition and fees
- Student loan interest
- Mortgage interest
- Charitable donations
- Medical expenses (if they are more than 7.5 percent of your adjusted gross income)
More information about taxes can be found at the IRS Web site.