Every year, taxpayers scramble to find ways to lower their tax liability. Unfortunately, by the time many people ask, some of the best opportunities to reduce taxes for the current year have already passed. That’s why it’s crucial to be proactiveand stay informed about tax-saving strategies ahead of time.
Below, we’ll cover three key ways to reduce your tax bill:
Tracking Eligible Expenses
Taking Advantage of Tax Credits
Deferring Income and Accelerating Deductions
- Keep Track of Eligible Expenses
Diligent record-keeping is one of the most effective ways to reduce your taxable income. Here’s how:
✅ Itemized vs. Standard Deduction: If you plan to itemize, track deductible expenses such as mortgage interest, state and local taxes, medical expenses, and charitable contributions. Even if you don’t itemize on your federal return, some expenses may still be deductible on your state return.
✅ Business & Rental Expenses: If you own a business or rental property, document all related expenses—from office supplies to home office deductions. These deductions can significantly lower taxable income and should be carefully recorded throughout the year. (I’ll cover these deductions in greater detail in a future post.)
- Take Advantage of Tax Credits
Unlike deductions, which reduce taxable income, tax credits provide a dollar-for-dollar reduction of your tax bill. That means a $2,000 tax credit reduces your taxes owed by $2,000.
Some common tax credits include:
Education Credits – The American Opportunity Tax Credit (AOTC) provides up to $2,500 per eligible student for college expenses. If you’ve used up the AOTC, the Lifetime Learning Credit (LLC) may still be available. Learn more here.
Child Tax Credit – If you have dependents, you may qualify for up to $2,000 per child, with a portion being refundable.
Energy Efficiency Credits – Upgrading your home with energy-efficient appliances or solar panels may qualify for federal and state credits.
- Defer Income & Accelerate Deductions
Strategic timing of income and expenses can be a powerful tax-saving tool.
🔹 Deferring Income: If possible, consider delaying year-end bonuses, freelance payments, or business invoices until the next tax year—especially if you expect to be in a lower tax bracket next year.
🔹 Accelerating Deductions: If you’re close to itemizing, consider “bunching” deductions into a single year. For example, making extra charitable donations or prepaying property taxes could push you over the threshold for itemizing in one year, allowing you to maximize deductions before taking the standard deduction in the next year.
Final Thoughts
Tax planning isn’t just about what you do at tax time—it’s about the strategic moves you make year-round. Keeping track of expenses, maximizing credits, and managing the timing of income and deductions can significantly lower your tax bill.
If you need help implementing a tax-saving strategy for your business or personal finances, MackBooks LLC can help!
📩 Contact me today at aumackbookkeeping.com to schedule a consultation and get ahead on tax planning.
