I know few believe this, but income tax planning is a year-round activity. Try and contain your elation. Here are some ways to save and plan:
- Lower Your AGI. Adjusted Gross Income, or AGI, is a taxpayer’s total gross income minus specific deductions that can reduce the taxpayer’s income before calculating tax owed. AGI is the starting point for calculating taxes and determining a taxpayer’s eligibility for certain tax credits and deductions that can help lower their tax bill.
- Taxable income is a taxpayer’s AGI minus the standard deduction or itemized deductions, whichever is greater.
- The standard deduction is a set dollar amount that reduces taxable income. Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions and using the option that lowers their tax the most.
- Properly claiming tax credits can reduce taxes owed or boost refunds. Do you qualify for credits?
- Some tax credits, like the earned income tax credit, are refundable, which means an eligible taxpayer can get money refunded to them even if they don’t owe any taxes.
- To claim a deduction or credit, taxpayers should keep records that show their eligibility for it.