Personal Finance For Dummies®, 6th Edition

Chapter 7. Trimming Your Taxes

In This Chapter

• Understanding the importance of marginal tax rates

• Reducing employment income taxes and increasing your deductions

• Lowering investment income taxes

• Tapping in to education tax breaks

• Getting help from tax resources and handling an audit notice

You pay a lot of money in taxes — probably more than you realize. Few people know just how much they pay in taxes each year. Most people remember whether they received a refund or owed money on their return. But when you file your tax return, all you're doing is settling up with tax authorities over the amount of taxes you paid during the year versus the total tax that you owe based on your income and deductions.

Understanding the Taxes You Pay

Some people feel lucky when they get a refund, but all a refund really indicates is that you overpaid in taxes during the year. You should have had this money in your own account all along. If you're consistently getting big refunds, you need to pay less tax throughout the year. (Fill out a simple tax form, the W-4, to determine how much you should be paying in taxes throughout the year. You can obtain a W-4 through your employer's payroll department. If you're self-employed, you can obtain Form 1040-ES by calling the IRS at 800-TAX-FORM [800-829-3676] or visiting its Web site at www.irs.gov. Also, the IRS Web site has a helpful "withholding calculator" at www.irs.gov/individuals/article/0,/id=96196,00.html.)

Tip

Instead of focusing on whether you're going to get ...