Highlights of today’s show:

• Advertisers know what to do with your tax refund
  
• The three basic things to know about the tax systems
  
• Ways to lower your taxable income
  
• Tax credits you might qualify for
  
• Why I think the tax system is too complex
  

After talking about four major tax myths
in last weeks lesson, today we share tips on how to reduce your taxes
for this upcoming filing season and beyond. Before we learn how to lower
our taxes we first need to know the following three basic things:

1. Our Adjusted Gross Income (AGI)-Our AGI is the amount that we pay taxes on before deductions and credits are removed.
   
2. Tax Brackets-It
   is important to know what tax bracket you are in because it will help
   determine the tax impacts of having certain deductions or added income.
   To view what tax bracket you are in for 2013 check out this link.
   
3. Do
   you take the standard deduction or do you itemize? The government
   allows us to deduct certain expenses on our taxes; mortgage interest,
   charitable contributions, property taxes paid, state and local taxes
   paid are the most common. But we can deduct those only if they exceed
   the standard deduction which is the amount that everyone may deduct from
   their AGI. In 2013 the Standard Deduction is $12,200 for married
   couples and $6,100 for individuals.
   

After knowing these three basic things we can now discuss ways to lower our AGI. There are two major ways to do that:

1. Contribute to a Health Savings Account (HSA)-I love my HSA
   and for good reason. A HSA is a savings account attached to high
   deductible health insurance plan that you and your employer contribute
   to. As long as you use your account to pay for qualified health expenses
   the contributions are tax free! Your contributions reduce your AGI
   which ultimately lowers your tax bill.
   
2. Contribute to a 401(K) or
   IRA-Who says savings doesn’t pay off? Not only are your saving for your
   future when you contribute to a retirement account but it can help save
   us come tax time.
   

Now that we have lowered our taxable
income, we can now focus on tax credits. There are a lot of tax credits
available to us, check out IRS.gov for a full list of 2013 tax credits but below are some common ones you may quality for:

1. Child
   credit-You get a credit of $1,000 per child under the age of 17 on your
   taxes. This is to help offset the cost of raising your child. If you
   are parents you know that a child cost more than $1,000 a year to raise,
   but I’m not complaining.
   
2. Education Credits-Go back to school this year to work on your bachelors or masters? You may qualify for educational credits.
   
3. Adoption Credit-If you adopted a child in 2013 you may qualify for a reimbursement of up to $12,970.
   

Worn
out yet? If so I don’t blame you. After doing two lessons worth of
shows on taxes I’m really frustrated with the tax system. At the end of
the show I give my opinion (rant?) on the state of the current tax
system and share why I think major reform needs to be made.

Finally
we also discuss how the marketers on TV and radio definitely have a
plan for your bonus and tax refund. They want you to buy a new car, take
a vacation, or remodel your home. Not that those things are nice but do
we you have a plan for your tax refund? Like our monthly income, a
large financial windfall needs to have a plan to best be used
effectively. For advice on how to handle your refund this year check out
the podcast I did on receiving a financial windfall.

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You can find prior editions of the podcast at the podcast archive page.