Raise Your Tax IQ

If you have a job, you are obligated to pay income taxes. That’s a basic fact of working life. But when you get into the details of tax rules, you might find it pays to become tax savvy. Follow these helpful guidelines to keep more of your hard-earned money in the bank.

Ensure you’re withholding the correct amount.

Having taxes withheld from your paycheck lets you pay taxes a little bit at a time, but you want to make sure you’re not having too much or too little taken out.Your withholdings are determined by your W-4. The IRS has a helpful calculator to help you determine your withholdings.

A large refund at tax time means you’re paying too much in taxes per paycheck, and you have less money throughout the year to make your money work for you—to pay down debt, or to invest. If you owe Uncle Sam come April, you’re not paying enough in taxes each paycheck. Either scenario calls for a review of your W-4.

Get to know your deductions.

A deduction is a reduction in your taxable income—and potentially in the taxes you owe. Deduction examples include charitable donations, student loan interest, medical expenses, business expenses, and educational costs.

When claiming deductions, you can choose to take the standard deduction or an itemized deduction. The standard deduction ranges from $6,300 to $12,600 depending on your filing status. This route is the easiest, but if you think your deductible expenses add up to more than the standard deduction, you can itemize them.

Don’t forget your education credits.

As a student, you could be eligible for a variety of different credits and deductions. Visit the Internal Revenue Service (IRS) website for five ways to offset education costs. Keep in mind that if you are still claimed as a dependent on someone else’s tax return, you may not be eligible to claim these credits or deductions yourself.

Use your refund wisely.

Let’s say you’ve filed your taxes on time, and it turns out the government owes you money. It might be tempting to splurge using your refund check. But before you do, consider options like paying down debt or putting your refund in a savings account.