4 Lesser-Known Ways to Lower Your Taxes in 2023

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You might be able to owe less to the IRS. 

Whether you consider yourself a lower earner, an average earner, or a higher earner, when it comes to taxes, your goal is probably the same — to pay the IRS as little money as possible. With that in mind, Mark Steber, Chief Tax Information Officer at Jackson Hewitt, has these helpful tips for minimizing your tax liability — and keeping more of your hard-earned money for yourself.

1. Be organized

There are many different factors that go into calculating your tax liability, explains Steber. These include everything from your job-related earnings to your business-related deductions to the interest you earn in your savings account. That’s why it’s so important to keep your financial documents neat and organized.

In fact, Steber suggests spending about an hour each month on taxes — meaning, to spend that time organizing paperwork and thinking about ways to eke out more savings. This is an especially important thing to do if you own a small business or are self-employed.

“People often overlook deductions related to their businesses,” Steber explains. Keep good records of your spending, so a tax professional has an easier time identifying deductions you can claim.

2. Max out your retirement plan

Have access to a 401(k) at work? The more money you put into a traditional 401(k), the less income the IRS gets to tax you on. The same holds true for a traditional IRA account, which is a good option if you don’t have a 401(k) plan through your job.

Now keep in mind that if you contribute to a Roth 401(k) or IRA, you won’t get an immediate tax break on your contributions. These accounts, however, offer other tax benefits, so it’s worth discussing whether a traditional or Roth savings plan is right for you with a financial advisor or accountant.

3. Don’t be afraid to claim legitimate deductions

Some tax filers might hesitate to claim certain deductions for fear of getting audited. But Steber insists there’s no reason not to claim deductions that are legitimate.

The home office deduction, he says, has a reputation of being an audit red flag. But if you’re self-employed and qualify for that deduction, there’s no reason not to take it. And the same holds true for other legitimate deductions, like the cost of internet service if you need it to do your job.

4. Look at education benefits

Whether you’re paying for education for yourself or a family member, there are different tax breaks you may be eligible for. Steber advises anyone paying for education to look at the American Opportunity Credit and Lifetime Learning Credit to see if they’re eligible. (Hint: If you work with a tax preparer, they’ll be able to tell you.)

Meanwhile, if you’re saving for education, Steber suggests doing so in a tax-advantaged manner. That could mean funding a 529 plan, which won’t give you a federal tax break on your contributions but will give you a tax break on gains and withdrawals.

It’s natural to want to pay as little tax as possible. Make these moves and you could end up shrinking your IRS liability quite a bit.

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