15 Tax Tips for Non-Millionaires

Everyone would like some guidance on how to save money on taxes. Millionaires (and billionaires) stand to save the most, and tips for them might include buying a yacht (outfitted for overnighting) or a second home, in order to deduct thousands of dollars in mortgage interest and possibly property taxes as well.

Average people aren't likely to buy a second home or yacht, but they can still save a lot of money (and/or a lot of headaches) by learning these 15 tax tips.

5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

For starters, you may be able to avoid a lot of headaches if you stay organized, taxwise, throughout the year. Come time to prepare your tax return, you may need to be able to tally up how much you spent on this or that, and there will be various documents that you'd love to have at your fingertips, such as stock trade confirmations from years past, showing your cost basis in various stocks. So have a system -- which could be one or more folders or even a shoebox in which you drop any receipt or document that could be helpful come April.

Next, if you're preparing your tax return in the old-school style -- by hand -- take extra care. Write as legibly as you can, because if the IRS can't read your handwriting, an audit could be triggered. (Audits are not necessarily bad and needn't be dreaded, but they can still be an avoidable hassle.) Also, be sure to include all your income and to avoid mathematical errors, as they could also result in an audit.

ALSO READ: Taxes on Investments: Understanding the Basics

If you're preparing your tax return by hand, consider not doing so and opting for tax prep software instead. Why? Well, because the software package you use will be fairly thorough, asking questions that can make sure you provide all necessary information, and it will help you avoid typos and math errors, too. Software packages may be able to help you identify deductions and credits available to you as well.

If your financial situation is complex in any way, consider using the services of a tax pro, such as an enrolled agent, as one will know the way around the tax system much more than you do. Complexities can include having done work in multiple states, having multiple jobs, having a small business, being self-employed, and working from a home office, among other possibilities. Tax pros can advise you on what's possible and what's not possible -- such as which deductions you're eligible to take. They can help you strategize and save money, too.

ALSO READ: Why It Pays to Meet With a Tax Professional All Year Round

It's very common to procrastinate when it comes to preparing and submitting tax returns, and post offices are very busy on April 15. But there are some good reasons to get that work done sooner rather than later. For one thing, you're going to have to do it sometime, so getting it over with will keep it from hanging over your head. The sooner you file, the sooner you'll get your refund, if you're expecting one. And if you're late to pay, you may be charged penalties. Also, there are scammers out there who like to impersonate people and file fake returns for them, to collect refunds in their name. Sooner is better.

5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

There are some misconceptions about tax extensions. For one thing, they're easy to get, and it might make sense to get one -- perhaps, for example, if you don't think you're going to receive some necessary documentation for your return in time. Another misconception is that an extension means you can delay not only filing your return, but paying your taxes. Nope. The IRS will let you file your return late, but it still wants its money on time. If most or all of your income is from a regular salary, you may be all good, due to having taxes withheld throughout the year. But if not, if you think you'll owe money, send in what you think you owe by the April deadline. To get that extension, file Form 4868 with the IRS by the general April deadline. It will give you six months, until October, to file your return.

ALSO READ: 3 Things to Know About Getting a Tax Extension

An IRA account may not be of much importance to millionaires or billionaires -- they may not even qualify to use IRAs. But an IRA account can do a lot to help you save for retirement, offering an up-front tax break (with a traditional IRA) or a back-end one (with a Roth IRA). Saving just a few thousand dollars per year in an IRA can have you ending up with an account worth several hundred thousand dollars by retirement -- and if it's in a Roth IRA, that can all be tax-free income in retirement! For 2022, the maximum you can contribute to an IRA is $6,000 -- plus $1,000 if you're 50 or older.

A 401(k) account can be even more powerful for retirement saving, as it has a much fatter contribution limit. For 2022, that limit is $20,500 -- plus an additional $6,500 if you're 50 or older, for a total of $27,000. Just be sure to avoid committing any common 401(k) mistakes, such as leaving contributions in extra-conservative default investments if that won't serve you well, and cashing out when you change jobs. Making good use of a 401(k) can lead to a big retirement nest egg.

Filing your tax return electronically is a fantastic idea, for several reasons. For one thing, you'll get your return faster. It's also convenient -- you can generally file directly from your tax prep software or have your tax preparer file electronically for you. It can be free to file electronically, too -- such as if you're using the IRS Free File software.

ALSO READ: 4 Reasons to File Your Taxes Electronically

If you're a stock investor with some losses this year, you may be able to use them to shrink your tax bill. You can offset taxable gains with your taxable losses, and if you do so and still have more losses remaining, you can offset up to $3,000 in taxable income -- and then carry any remainder over to future years. Pretty sweet, eh? It's a chance to make some lemonade from your investing lemons.

ALSO READ: Selling Stock: How Capital Gains Are Taxed

Tax-savvy non-millionaires would do well to read up on tax news now and then, and to be fairly informed about what deductions exist, in order to know how they may be able to shrink their tax bills. Don't just wait for April to look into it, because there are some actions you may have needed to take earlier, such as incurring a big deductible medical expense or making some charitable donations before Dec. 31.

5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

One clever strategy regarding tax deductions is to bundle them, if you can. This can work if your regular deductions are not quite enough to make it worth itemizing deductions. So if you can pull a bunch of deductible expenses into the current year that you would normally make early in the next year, you can beef up your deductions. This strategy will generally only work every other year, of course -- and with standard deductions having recently been greatly increased, it simply won't work at all for many people.

Just as you'll want to keep up with tax deductions, you'll want to do the same for tax credits -- as they're even more powerful than deductions. Here's why: Imagine that you are in the 24% tax bracket and you have a $1,000 tax deduction. If so, you'll save $240 -- you'll avoid paying that 24% on the $1,000. If you have a $1,000 tax credit, though, you'll save $1,000! Some credits may require taking action before the end of the year, too, such as if you are going to spend money on a home improvement for which a tax credit is available.

ALSO READ: Why Tax Credits Are Worth More Than Deductions

Many of us can make great use of health savings accounts (HSAs) -- if we have high-deductible health insurance plans. Another option, which doesn't require a high-deductible plan, is a flexible savings account (FSA). One feature of FSAs, though, is that you'll need to spend most or all of the money in your account by the end of the year -- or lose it. So if you have a FSA, stay on top of it.

ALSO READ: What Is a Flexible Spending Account?

Finally, if you're not a millionaire but you'd like to be one, you'll probably need to save aggressively and invest effectively over a long time. (Yes, it can take a lot of dedication, but it's a very achievable goal for many, if not more, of us.) One effective strategy is to bank your tax refund every year. Deposit into your brokerage account and do some long-term investing in stocks with it, perhaps via a low-fee, broad-market index fund, such as one that tracks the S&P 500.

5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

It may not be exciting to read up on taxes, but the thought of possibly saving hundreds, if not several thousand, of dollars per year should be pretty exciting. All those dollars saved might be parked in long-term investments that can help you reach your financial goals -- of an early retirement, a vacation home, or whatever.

The Motley Fool has a disclosure policy.