One of the most effective ways of reducing your taxes is to contribute to your employer-sponsored retirement funds. If you give your consent to the plan, your employer will deduct the contribution that you have agreed on making to the retirement fund from your gross pay while calculating the amount of income taxes you owe. In a nutshell, the lower your gross pay, the lower income tax you will have to pay.
All charitable donations are deductible. It does not matter if these donations are in form of cash, goods or services. If you have anything lying your closet that you no longer require, it would be a good move to take it out and donate it to charity. This will not only help you to clean up the house of stuff that is taking unnecessary space, but will also result in you having to pay less tax in the current year. Be sure to keep the receipts for all the donations that you make.
Money spent on managing your money such as safe-deposit fees, tax-prep fees, calls to broker or subscriptions to investment journals are also deductible if they top two percent of your annual gross income.
Going green can help you save money on taxes as investing in energy efficient and solar power improvements are deductible following the Energy Policy Act 2005.
Student loan interest is deductible. If you had taken a student loan for completing your education and are still in the process of paying it back, deduct the interest you pay from your income tax.
If your first job after graduating from college required you to relocate to a new place, do not lose the receipts of your expenses. These moving expenses are deductible.
Your medical expenses are also deductible if you itemise them. These deductible expenses include the money you have spent on prescription drugs and doctor visits to surgery.