How To Avoid Overpaying Income Taxes

in Tax Information


Many Americans overpay the government each and every year and in essence, these overpayments are interest free loans to the government. Now granted, if you file your taxes properly, you should get all of the overpayed taxes back but if you hadn’t overpayed that money to begin with, it could have been sitting in an interest bearing savings account earning you money instead.

There are a few ways by which you can avoid overpaying on your taxes. One of the best and most effective ways to avoid overpaying is to adjust your withholdings on your IRS Form W-4. The W-4 is used by employers to determine the correct amount of tax withholding to deduct from an employee’s wages. Each employee must fill out a W-4 when beginning work for a new employer. Your employer is required by law to allow you to make changes to your W-4 when you request to do so. In most circumstances, you won’t make changes to your W-4 unless you have life changing experiences such as a marriage or the birth of a child. If either of these occur, you can adjust your W-4 to reflect that you have more dependents by claiming an allowance for each new dependent. Each allowance is worth $3,650 in tax free income for the year 2009. You want to be careful not to claim more allowances than you are allowed as the IRS can and will penalize you for underpayment of taxes.

Another effective way to reduce overpayment of taxes is to itemize your deductions versus using the standard deduction, which is the fixed amount the IRS allows as a deduction. Itemization generally requires extremely meticulous record keeping as you need to keep receipts for every expense that could be considered for use as an itemized deduction. Most people find this rather tedious which is why most people elect to use the standard deduction instead. You could in fact be saving yourself a lot of money by taking the time to record and keep receipts of relevant purchases and expenses. Thinking of it that way should make it that much easier, keep a few records and pay Uncle Sam less.

Perhaps the most effective way you can choose to try and reduce your overpayments to the government, is to opt to have the help of a professional tax preparation specialist. These professionals can and will help you find the most suitable ways to reduce your income tax owed and to help you receive the biggest refund you are entitled to. You can find one of these tax preparation gurus at anytime of the year, so there is no need to wait until the last minute. The majority of these individuals are well versed in the current tax codes and are knowledgeable on how to reduce the amount of taxes you owe to the government while maximizing the amount of the refund you should get. Stop paying the government too much money and start getting the money you’ve worked hard for and earned.

Have a tax question? Ask one of our tax professionals.