When it comes to your finances, there are few things you can do that are as beneficial as really understanding taxes and keeping up with current tax law. Most people don’t realize just how much they pay in taxes every year. The government is always coming up with various schemes to get you to do this or that and most of the time they try to motivate you by giving you some type of tax rebate or credit.
In the past year, I’ve been able to save over $15,000 simply by paying attention to the changes tax laws and taking advantage of different credits, lower tax rates, etc. That may or may not seem like a lot of money, but considering the average household income where we live is in the $30k range, we’ve saved in taxes what most people live on for 6 months out of the year. For example:
- We bought our house when the government was giving people a $7,000 refundable tax credit just for buying a house.
- Capital gains taxes were lowered for the past two years, so we were able to sell some stock and have the gains taxed at a much lower rate than normal.
- Our state was offering a program to get an energy audit done where we only had to pay $100 rather than the full $700 to $1,500 it would normally cost.
- There is a federal tax credit for making your house more efficient. We took advantage of this by replacing some old doors and windows that were letting in a draft.
- Put pre-tax money into a health savings account where we can use it for medical expenses.
Most people just assume that they can’t understand the tax code. By the time they go to have their taxes done, it is too late to take advantage of some of the bigger tax deductions because the tax year is over. Tax law is complicated, but it is pretty easy to get an idea of the types of things you can do to save money. There are a number of great books that help walk you through the different ways you can save money on your taxes and the IRS website is easier to use than you’d expect. Investing a few hours each month educating yourself about current tax law can keep thousands of dollars in your bank account.