How to Not Owe Money at Tax Time

There’s nothing like the feeling of thinking you’re done with your taxes, and then finding out you owe money. I equate it to the feeling you might have when you’re scuba diving and your tank runs out of air. It just sucks the life out of you.

Six years ago when I owed money unexpectedly (and it was a lot of money), I vowed that it would never happen again. I don’t even need a refund. I just want to break even. Why? Because a refund means you’ve paid the government too much money in taxes that year. I would rather pay myself and put that money in savings, where it will earn interest. That being said, I’d still take the refund over having to pay.

Here are some ways to help you avoid owing money at tax time. Remember, these are just ideas. Neighborhood Credit Union is not licensed to give tax advice. You’ll have to consult with a tax expert to see which ones apply to you.

Have More Tax Deducted From Your Paycheck

We all like to see more money coming home in our paycheck, but not if it’s going to cost you at tax time. Be sure your company is taking the right amount of tax from your check. Sometimes claiming dependents is not enough, especially if you get overtime pay. There is a free online calculator at paycheckcity.com that will help you figure out how much tax is enough. Even if you claim zero dependents, you can still have your employer take additional money out of your check and apply it to taxes.

Keep Your Receipts

A few years ago, the IRS added sales tax to the list of allowable deductions. You have the option to choose the standard deduction, or you can add up all the sales tax you paid over the year and use the actual amount. It’s easier to take the standard deduction, but if you buy a lot of stuff, particularly big ticket items, like appliances, furniture, automobiles, etc., it could be worth your while to hang on to those receipts. Keep them in a basket or file and add the sales tax every month so you don’t have to do it all at tax time.

Take All the Deductions Entitled to You

The IRS gives us deductions for a reason. They are legally ours to take. If you’ve been paying interest on a home equity loan, it may be deductible. If you own more than one home or property, property taxes on all them could be deductible. Do you have a child in daycare because you have to work? That makes daycare expenses a deduction. Are you caring for a parent and paying some of their expenses? Those expenses could be a deduction. Do you buy supplies for your job that don’t get reimbursed? Those are deductible. The list goes on and on.

If you pay someone to do your taxes, be sure they are asking you these questions. It could keep you from owing money to Uncle Sam.