20 Tax Hacks for 2020

Fulfilling your obligations to the IRS is never fun. After all, who wants a big chunk of their paycheck taken by the government -- even if taxes do fund important services.

The good news is, there are plenty of ways to save on your tax bill. You just need to understand the tax rules to make sure you're maximizing your deductions and credits and minimizing the income you claim.

Not sure if you're taking full advantage of the tax savings available to you? Check out these tax hacks for 2020 to keep your tax bill as low as possible.

You'll have to choose a filing status when you send in your tax returns. Depending on your family status, you may be eligible to file as single, head-of-household, qualifying widow or widower, married filing jointly, or married filing separately.

Your filing status affects your tax rates and the deductions you claim. Filing as head-of-household, married, or qualifying widower, for example, means you won't move to a higher bracket until you earn more income.

Be sure to check out which statuses you're eligible for and pick the one that provides you the most savings.

You don't pay taxes on all the income you earn. You're allowed to claim a standard deduction, which is a flat amount you can deduct based on your filing status. Or you have the option to itemize instead of claiming the standard deduction.

The Tax Cuts and Jobs Act, passed in 2017, significantly increased the standard deduction. To make sure you're reducing your income by the largest possible amount, add up the value of all your itemized deductions and compare it to the standard deduction. Then, claim whichever is greater.

ALSO READ: Here's the 2020 IRS Standard Deduction -- and What it Means to You

If you claim the standard deduction instead of itemizing, you lose out on the chance to claim a deduction for specific expenses you incur. You can't deduct for mortgage interest or charitable contributions, for example.

You'll still want to claim the standard deduction if it provides more tax savings. But one option you have to benefit from itemizing deductions is to bundle your deductions so they add up to a higher amount than the standard deduction.

For example, instead of making small contributions to a charity each year, save that money up and make one larger contribution in a single year. If the value of the deduction for the larger contribution exceeds the amount of your standard deduction, you can itemize in that year and score the tax savings you deserve for your generosity.

Contributing to a workplace 401(k) can score you big tax savings as you can deduct the entire amount of your contribution up to annual limits. Depending on income, you may also be able to deduct contributions made to an IRA.

You can claim a deduction for contributing to these retirement accounts even if you don't itemize. So be sure to contribute as much as you can or even consider maxing out these accounts. You can cut your tax bill dramatically while setting yourself up for a more secure future.

ALSO READ: Your 2019 Guide to Retirement Plans

If you have a qualifying high-deductible health plan, you are entitled to make deductible contributions to a health savings account (HSA).

Contributing to a health savings account has major tax advantages because you can deduct for contributions as you put money into the account and won't be taxed on withdrawals as long as you use the money for an eligible healthcare expense.

While you have the option to withdraw the funds from your HSA as you need them to pay for care, it can be better to keep the funds invested, let them grow, and build a big account to cover care costs in retirement.

Did you know that making certain improvements to your home could entitle you to tax credits? You could be eligible to claim these credits for installing solar power or wind power, for installing a geothermal heat pump, or for making certain other upgrades to make your home more energy-efficient.

Credits are especially valuable because they provide a dollar-for-dollar reduction on your taxes. You could not only reduce the amount you pay the IRS but could reap saving for years to come on your electric bill when you take advantage of these credits.

ALSO READ: How to Use Residential Solar to Guarantee a Double-Digit Return

If you have children, you should be eligible to claim the Child Tax Credit.

The Tax Cuts and Jobs Act raised the income level at which this credit is available and doubled the amount of this credit, providing significantly more tax savings.

And a portion of this credit is even refundable, which means you're entitled to get money back if the credit value exceeds the taxes you owe.

It's not just children who can qualify you for a credit. You may be entitled to a $500 credit for "other dependents" as well.

You can potentially claim this family credit for anyone who meets the definition of a dependent. This could even include non-relatives if you provide the bulk of their financial support.

Investment income can be taxed at a lower capital gains rate than income from wages. In some cases, the capital gains rate is as low as 0% so you'd pay no income on taxes earned from investments.

Make sure you're taking advantage of the chance to earn income taxed at this low rate by making investments. And be smart about when you sell investments because low capital gains tax rates are generally available only on investments held over the long-term.

Losing investments can score you a tax deduction. You can offset capital gains by claiming capital losses, which means you'd avoid paying income on investments. You can even claim capital losses to reduce other taxable income by up to $3,000.

In some cases, it makes sense to harvest tax losses by selling poorly-performing investments to score these tax breaks.

If you itemize your deductions, you can claim a deduction for up to $10,000 in state and local taxes paid.

For many people, it makes sense to claim a deduction for state income taxes. But you're also eligible to deduct for sales taxes paid instead of income tax paid to your state.

If your state doesn't collect income taxes or if you didn't have much taxable income, claiming the sales tax deduction could maximize your savings.

When you obtain a mortgage on your home, you're allowed to buy points. Points reduce the interest rate you pay and are essentially prepaid interest.

If you buy points on a mortgage, you can claim a tax deduction on the cost. You're allowed to deduct mortgage interest on up to $750,000 of mortgage debt, so you can claim a credit for the full value of points if your debt is below that level.

Points can be deducted in full in the year you buy them if you meet certain requirements, including using your mortgage to acquire a new home or improve your home.

If you took out a refinance loan and didn't use the proceeds for home improvement, you can deduct the points on a prorated basis over the life of the loan.

If you itemize, you may be able to claim a deduction for medical expenses that exceed a certain percentage of your income. For 2020, you can deduct expenses that exceed 10% of your adjusted gross income.

Keep track of expenses you incur to see if you exceed this threshold. You can also be smart about when you schedule procedures if you have the option so you can bundle your medical costs into one year to get above the threshold required to make them deductible.

If you pay student loan interest, you can deduct up to $2,500 of the interest you pay from your taxable income. You're entitled to claim this deduction even if you don't itemize, provided your income isn't too high.

The American Opportunity Credit and the Lifetime Learning Credit can both save you thousands on your tax bill if you pay eligible educational expenses for you or a dependent.

While the American Opportunity Credit is pretty restrictive in terms of who can qualify, the Lifetime Learning Credit is far more flexible and could entitle you to a deduction just for taking a class to improve your skills -- provided your income isn't too high to qualify.

ALSO READ: American Opportunity Credit vs. Lifetime Learning Credit: Which Can You Use?

The Tax Cuts and Jobs Act changed the rules on business taxes. One of those changes involved introducing a deduction for up to 20% of business income for qualifying businesses.

The Qualified Business Income Deduction could be available even for sole proprietors who earn income from business activities. So if you have a side gig or run your own company, find out if you're eligible.

You should also keep track of other business expenses that qualify you for a deduction to reduce your taxable income even further.

Another big change that the Tax Cuts and Jobs Act made was cutting the corporate income tax rate. This rate applies to C-corporations.

If you run a business, make sure you've structured your company the right way to get the lowest tax rate for your situation.

While you run the risk of double taxation with a C-corporation since the company pays taxes and you also pay taxes on distributed profits, it makes sense to explore this and other options to see what type of business entity is most advantageous for you.

Low and middle income families may be eligible for the Earned Income Tax Credit. This refundable credit is quite valuable if you're eligible for it based on your income, family size, and the amount you earn.

Because the credit is refundable, you can get back money even if you didn't pay enough taxes to cover the amount of the credit. You'll need to be sure to submit a tax return to claim the credit though.

Adopting a child can be very expensive. The good news is, you could be entitled to a tax credit for your adoption-related costs.

The credit is available for every child you adopt, regardless of your method of adoption. This means you can claim it whether you have a domestic private adoption, an international adoption, or adopt a child out of foster care.

There are income limits to be aware of, though, and the credit is non-refundable, although you can carry it forward for five tax years.

Doing your taxes by yourself can be complicated, and you run the risk of missing out on deductions and credits. To make sure you're saving the most you can on your taxes, consider getting free help.

The Volunteer Income Tax Assistance (VITA) program makes assistance available to people with incomes of $56,000 or less, while the Tax Counseling for the Elderly (TCE) program offers free tax help for senior taxpayers.

Take advantage of these programs to get assistance with your return so a professional can help you max out your tax breaks.

ALSO READ: 4 Ways to Get Ready Now for Tax Season

It's never too early to start prepping for the next tax season. Hopefully these tips will help you to make the right choices when it comes to filing your taxes so you can maximize the value of deductions and credits and minimize what you owe the IRS.

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