Calculating Your Federal Income Taxes

Posted on: 27 September 2018

If you fall into the low income bracket this tax year, there are a few things that you can do to ensure that you reduce your tax burden and maximize your return come tax time.

#1 Contribute to Your Retirement Fund

If at all possible, try to contribute to your retirement fund. You will get a tax credit for contributing to your retirement fund. This tax credit is larger if you are in a lower income bracket than if you are in a higher income bracket. The federal government recognizes that it is harder to save money when you are bringing less money in. However, it does reward you for this effort.

If you work for a company that offers an employee match, take advantage of it. If they will match up to 5% of your paycheck, put that much into your retirement funds. This is actually a great way to earn more money. Contributing to a 401(k) retirement fund will also reduce your income, and thus the taxes on it. This may actually allow you to take home more money instead of less money while building your wealth for the future at the same time.

#2 Earned Income Tax Credit

If you fall into one of the lowest tax brackets, be sure to check and see if you qualify for the earned income tax credit. The earned income tax credit is for low-income individuals and households. The more members you have in your household and the lower your income bracket, the greater the chances are that you quality for the Earned Income Tax Credit or EITC. Your tax preparer can check and see if you qualify. If you do qualify, you are going to want to make sure that you file for the EITC. You have to be proactive and file for the EITC, the government does not just give it to you.

If you have a tax bill, the credit you get from the EITC could eliminate your tax credit. If you don't have a tax bill, the EITC could increase the money that you get back as a refund.

#3 IRA Contributions

If you have a little extra funds, consider contribution to an IRA account. This is in addition or instead of a typical 401(k) account. You can fully deduct your entire contribution to your IRA account. This could help lower your taxable income and help you bring more money home when you file your taxes.  

Even if you are a low-income individual, it pays to save. The federal government takes steps to ensure that it rewards low-income individuals who save towards their taxes. Contribute to your retirement fund and IRA fund, and be sure to check and see if you qualify for the EITC when you file your taxes. Work with a tax preparation provider, like Christopher Bush CPA, to get the best deal on your taxes.