Is Your Tax Bill Too High? 20 Ways to Save

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TAX SAVINGS RIGHT UNDER YOUR NOSE

"You must pay taxes," says an old Morgan Stanley ad, "but there's no law that says you gotta leave a tip." In other words, why pay Uncle Sam more than you have to? It doesn't take a degree in finance to take advantage of a number of common but sometimes overlooked strategies that can save money come April (if not this year, then next year). We chatted with Theodore R. Yoos, a certified financial planner and owner of Cornerstone Financial Management in Burlington, Massachusetts, and Sean Stein Smith, an assistant professor at Rutgers University and a certified public accountant, about the best ways for the average taxpayer to lower his or her bill.
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MARRIED? CONSIDER FILING JOINTLY

Couples who do their taxes together stay together. Okay, we don't have any stats on that, but married couples who file jointly may save a few dollars. Taxpayers who are married and file their returns separately hit the higher tax brackets more quickly than if they had filed as a couple.

Related: 11 Tax Changes You Need to Know About (and 1 You Probably Don't)

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OPEN A RETIREMENT ACCOUNT

If your employer offers a 401(k) plan, take advantage. Employees can save for their golden years while letting their money grow tax-free until they retire. Some employers match employee contributions, as well. If you are self-employed, a SEP IRA allows you to sock away as much as 25 percent of earnings, sans taxes, until retirement. You can make contributions and claim a deduction right up until Tax Day.
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CREATE A HEALTH SAVINGS ACCOUNT

If your health plan has a high deductible, you may be able to open a health savings account. You can use an HSA to pay for medical expenses while cutting your tax bill. Every dollar that goes into that account is a dollar that isn't taxed.
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CLAIM HEALTHY SAVINGS

If you are self-employed, you may be able to deduct health insurance premiums, including those paid on dental, vision, and even long-term-care plans.
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CLAIM A HOME OFFICE

More than a third of Americans (35 percent) are working for themselves in some fashion or another, whether as consultants, freelancers, independent contractors, or business owners. That's more than 55 million people, according to a 2016 survey by the freelancing website Upwork and Freelancers Union. If you have space in your home that's dedicated to your business, calculate the square footage and multiply by $5 a square foot. You can subtract the total off your taxable income.
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TALLY UNREIMBURSED MILEAGE

If you are self-employed and travel for work, keep track of mileage with a running log in your car (there are apps for this as well). To total the amount of the deduction, add up the mileage and multiply it by 54 cents. You may also be able to claim this deduction if you work for a company that doesn't reimburse for mileage.
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DO YOUR OWN TAXES

There's nothing wrong with going to one of those giant tax preparation firms and letting them do the work, but it will cost you. Most taxpayers qualify to use free tax software. Those who make less than $64,000 a year can use the Internal Revenue Service's Free File program and don't have to pay a dime to submit a federal return, although state filing may come with an extra charge.
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CLAIM COLLEGE KIDS

You can still claim your kids as dependents on your tax forms up to the grand old age of 24, even if they have left for college and are living in a dorm. But you have to be paying a majority of their expenses -- and have the bills and paperwork to prove it.
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EASE THE PAIN OF TUITION PAYMENTS

There are also tax credits that can help alleviate the high cost of tuition. While there are income limits, the Hope Credit and Lifetime Learning Credit offer a dollar-for-dollar reduction in taxes.
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DEDUCT INTEREST ON THOSE DARNED STUDENT LOANS

Roughly 7 out of 10 new college graduates walked away with an average of more than $30,000 in debt, a 2015 report found. And private loans can carry interest rates of up to 13.7 percent. However, all that interest paid on student loans can be deducted from your taxable income.
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JOIN THE HOMEOWNER CLUB

Okay, buying a house is not exactly a cheap proposition. But renting isn't so inexpensive either. Simply put, if you are faced with paying $1,500 on rent or $1,500 on a mortgage, take the mortgage. You can deduct the amount you pay in interest each month while building equity.
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CONSIDER STATE TAX RATES

If you are contemplating a move, it's worth looking at state tax income tax rates, as well. Texas, Wyoming, South Dakota, Florida, Alaska, Nevada, and Washington don't have income taxes. New Hampshire and Tennessee don't tax wages or earnings, although they do tax interest and dividend income over a certain amount.
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DON'T UNDERPAY

Taxes are a big enough hassle as it is -- don't get hit by an underpayment penalty. That means making sure you have enough of your paycheck withheld to cover Social Security and Medicare taxes. A general rule of thumb: If you owe less than $1,000, or if you have already paid at least 90 percent of your total tax bill through withholding, you are likely to dodge this bullet.
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PAY IN INSTALLMENTS

You may enjoy running your own shop if you're self-employed. But even if you don't have a boss down the hall, you still have to answer to Uncle Sam. It might be tempting to put off paying taxes until April. But if you don't make quarterly tax payments, you'll be penalized and wind up paying more.
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BE CHARITABLE

It pays to be generous. Whatever you give away -- from clothes and money to artwork and stock -- can lower your tax bill. You'll need a receipt from the charitable organization and possibly an appraisal if you're donating furniture or artwork.
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LOWER SELF-EMPLOYMENT INCOME

Freelancers pay more in taxes because they don't have an employer to pick up half of their so-called payroll taxes (Social Security or Medicare.) For a married couple in which one partner is self-employed, it makes sense to focus any deductions on that more highly taxed, freelance income. If it's a toss-up who gets to claim the home office, for example, the self-employed partner should get the nod.
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TAKE ADVANTAGE OF TAX BREAKS FOR RETIREES

One of the tough things about the golden years is making ends meet on a fixed income. Many communities reduce property taxes for residents over 65 in exchange for a little volunteer work at the town hall.

Related: Don't Overlook These 15 Great Perks and Resources for Seniors

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CASH IN ON STOCK LOSSES

If you had a bad year playing the stock market, don't despair. Those losses can help cushion the tax blow on any gains. If you can't use all the losses in one year, you can roll over what's left into the next year.
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MAKE GOOD ON GAMBLING LOSSES

Maybe you like buying lottery tickets or going to the casino. Winning is a thrill, but it's not free money -- you still have to pay income taxes on it. And losing can serve a purpose as well. You can deduct losses up to 100 percent of your winnings.
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SAVE UP OR PAY UP

Make sure to set aside a little each month to save up for paying taxes when April rolls around again. Having to pay the IRS on a credit card is a very expensive proposition indeed.