To paraphrase a federal judge, you aren't required to pay one penny more than the law requires. The trick to minimizing your tax bill is knowing what those rules are so you can take advantage of them without running afoul of the IRS. Here are five strategies you can use to save on income taxes.1. Use last year's return as a reminder.
Review your tax return for 2011, looking closely at the deductions and tax credits you claimed. Then consider your activities for 2012 to see that you don't overlook anything when completing your 2012 return. For example, if you usually deduct charitable contributions, review the list of organizations you gave to in the past; this may prompt you to remember donation made in 2012 that would otherwise have been forgotten. However, be sure you have the required substantiation to prove your deduction.2. Check for new eligibility thresholds for tax breaks.
Some tax breaks are limited to those with income below set limits. Just because you didn't qualify for a particular tax break last year because your income exceeded a threshold amount doesn't mean you are barred this year as well. Many eligibility thresholds have increased for 2012, potentially making you eligible for the break. For example, if you participate in your employer's 401(k) plan, you may also be able to make a tax-deductible IRA contribution to reduce your tax bill as long as your modified adjusted gross income (MAGI) is below a threshold (based on your filing status). Those threshold amounts are higher in 2012 than they were in 2011.Other breaks with higher eligibility limits in 2012:
The amount that you can write-off may be larger in 2012 than was permissible in 2011. For example, the IRS-set mileage allowance for driving your vehicle for business, medical, and moving purposes is slightly higher for 2012 (in 2011, two rates for the year combined for a lower write-off).Other write-offs with higher limits in 2012 include:
Don't let laziness prevent you from claiming your maximum write-offs. Compare your itemized deductions with the standard deduction for your filing status; then deduct the higher amount. Itemized deductions include payments for:
You may be eligible for a refundable tax credit, which means you receive money back even though it is more than the taxes owed. Two refundable credits for 2012 are the earned income credit and, for some taxpayers, the child tax credit.Final word
If you overpaid your income taxes because you had too much withheld from your paycheck or your estimated tax payments were larger than necessary, be sure to file for a tax refund. The IRS does not send you a refund automatically.