By NYLAG Senior Financial Counselors Ruth Cedeno and Alma Rojas
Our personal finances and the financial decisions we make (or don’t make), impact almost every area of our lives in big and/or small ways. Recognizing this, in 2004, Congress officially declared April as Financial Literacy Month —a decision that continues to positively impact millions of people every year.
The goal is to empower individuals with knowledge about personal finance topics like banking, saving/investing, budgeting, and credit and debt management. This knowledge enables people to make informed decisions, avoid scams or predatory services, plan for their future, and advocate for positive systemic changes.
In that spirit, we want to highlight the benefits of tax planning and tax filing, even when you are not required to file taxes. We hope that this information helps you understand tax basics that can open the door to refunds, credits, and future financial opportunities.
What is tax planning?
Many people are surprised to learn that most of us can take simple steps to improve our tax situation on our own. Tax planning is the process of looking at your income, expenses, and savings to find ways to legally reduce the amount of taxes you owe. This can include claiming certain tax credits, deductions, and making smart financial decisions throughout the year.
Keep in mind, there are still certain situations, like complex investments or significant life changes, where consulting a tax professional is still recommended.
Tax planning tip #1: Take advantage of work benefits that lower your taxable income.
At work, you may have access to certain benefits- like retirement contributions or commuter expenses- that you pay using pre-tax dollars. That means less of your money gets taxed, so you keep more in your pocket and might pay less when you file your taxes later. Some examples of these accounts include:
- Retirement plans
- Commuter benefits
- Flexible spending accounts (FSA)
- Health savings accounts (HSA)
- Life insurance
- Tax-deferred annuity
- Education savings
To understand how these benefits work and how they can help you, make sure to talk to your job’s human resources representative.
Tax planning tip #2: Review the right tax amount is taken from your paycheck.
When you work for an employer, a portion of your paycheck is sent to the IRS to cover your estimated income taxes. These amounts are called “withholdings,” and they are calculated based on the information you provide to your employer on Form W-4. When you file taxes, the IRS checks if you paid the right amount during the year. If everything adds up, you may not owe anything. But if you owe a lot, it could mean not enough was taken from your paycheck.
Keep in mind: major life-changing events such as marriage, birth of a child, divorce or multi jobs may require changes to your withholding amounts. You can update your W4 as many times as needed.
Tax planning tip #3: Use tax credits to lower your tax bill.
You may be able to qualify for certain tax credits, such as the EITC and Child Tax Credit. When you do, these credits reduce the tax that you owe, dollar-for-dollar. These credits are powerful tools that help support working families and reduce income equality. Below is a list of credits that can help you familiarize yourself with some of the most important credits.
- Earned Income Tax Credit (EITC)- a refundable credit that is available to low to moderate workers. The amount of credit varies depending on your filing status, whether you have dependents, and other criteria.
- Child Tax Credit and Child and Dependent Care Credit – these credits help offset the costs of raising children and may give you a high refund.
- NYS and NYC also offer their own credits – some of which are refundable like the EITC. Some credits, like the NYC School Tax Credit, don’t require that you have taxable income to receive the refundable credit.
Tax planning tip #4: Save money by filing for free at a VITA site or the free IRS Tax software
- Taxpayers should take advantage of this free and easy way to file their taxes: IRS Free File lets qualified taxpayers use guided tax preparation software available only at IRS.gov to get free tax preparation, electronic filing and direct deposit of their federal tax refund, if they’re owed one.
- Free ways to file taxes: Taxpayers who still need to prepare and file their federal tax return should check out the many free options available, including IRS Direct File, a free and easy way to file directly with the IRS.
- File Your Taxes with NYC Free Tax Prep : Maximum credits. Full refund. If you earned $93,000 or less in 2024, file for FREE with an IRS-certified VITA/TCE volunteer preparer.
- Guía para declarar sus impuestos en 2025: Todo lo que tiene que saber sobre el Servicio de Impuestos Internos (IRS).
Want to know more? We recommend these articles:
- Urban Institute’s Four Ways to Reduce Racial Inequities in the Federal Income Tax System
- NPR’s Code Switch Podcast episode “WTF does race have to do with taxes?”
- At first glance, the tax code may appear to be “race blind,” but systemic tax policies and practices have historically benefited wealthy White families while negatively impacting families of color, particularly black families.
- ITEP’s Tax Payments by Undocumented Immigrants
- Did you know that in 2022 undocumented immigrants paid $96.7 billion in taxes? More than a third of these tax dollars went towards funding programs that these workers were barred from accessing. And a majority of the rest of the taxes funded public infrastructure, institutions and services.
In conclusion, Financial Literacy Month is the perfect time to focus on learning about how you can incorporate tax planning to optimize how much tax you pay. By managing your income, investments, and retirement contributions wisely, you can take advantage of tax deductions, credits, and other tax savings opportunities.
Still have questions? NYLAG Financial Counselors help you create a plan to secure a financially stable future.
- If you are currently working with a NYLAG financial counselor, reach out to them now to discuss your tax planning options.
- Connect with a NYLAG financial counselor.
