5 Simple Ways To Reduce Your Taxes
Our experts have put together 5 of the best ways to help lower your tax obligations this year.
Weve all heard the old saying There are only 2 guarantees in life, death and taxes. While paying taxes is unavoidable, you can make smart moves that will help reduce your overall tax burden, especially if you plan ahead.
Dont wait until your taxes are almost due before you start trying to save on your tax expense. Position yourself early on to get the most benefit. Some of these tips are methods that you can use throughout the year, and others need to be done within a specific time frame (before end of the year Dec 31st) so pay close attention and use each tip to help you save as much money as possible.
Donate To An Appropriate Charity
As long as the charitable organization meets the IRS guidelines. This is an easy way to lower your taxes and also do something good for the community.
The amount you can deduct depends upon whether you file for a standard deduction or an itemized deduction. With a standard deduction you may deduct up for $600 in cash.
If you are filing an itemized deduction it gets a little more complicated. You may deduct qualified cash contributions up to 100% of your AGI (annual gross income). In addition you may also deduct a value for donating items/property as well, see the IRS guidelines for more detailed instructions.
Contribute To An IRA
You might be familiar with the IRA retirement accounts but did you also know that it can help you save money on your taxes? The money you invest into your IRA can usually be tax-deductible as long as they qualify under the guidelines.
If your place of work does not have a retirement plan to cover you, then all traditional IRA contributions should be deductible. If your workplace does provide a retirement plan, then some of your IRA contributions might still be tax-deductible depending on your modified adjusted gross income. See IRS guidelines for more details on that.
If youre 50 years of age or above, the contribution limit is $7,000 (2021) and $6,000 for those under age 50. We recommend maxing out the deductible contribution limit every year as a great way to save for your future and also reduce your taxes.
Max Out Your 401(k) Investments
Many employers offer a 401(k) retirement account and this provides a great way to reduce your taxes. This is because traditional 401(k) contributions are considered pre-tax, which means they lover your overall taxable income on your W-2. Not only does this reduce the amount of tax you owe, but it also puts away more for your retirement.
We recommend maxing out the allowable contribution you can make, which for 2021 is $19,500 for those under 50 and $26,000 for age 50 and above. As we mentioned before, this is one of those items that you cant leave until the end of the year, start making your contributions right away so that you can reach the max limit.
Make Use Of Your HSA
If you have an HSA (health savings account) available, it can also help you reduce your taxable income. Just like a 401(k), the contributions to this account are pre-tax. Not everyone has access to this type of account, but if you do you may be able to deduct some or all of your investment, up to $3,600 for single plan holders and up to $7,200 for family plan holders.
Play The Accelerate/Delay Game
While your taxes might not be due until April of the following year, your taxes are still based on the calendar year ending Dec 31st. This provides a few unique opportunities to reduce the years taxable income by delaying income or acclerating expenses at the end of the calendar year.
If you are a homeowner that files an itemized deduction, you can accelerate your next years January mortgage payment by paying it in December of the current year. What this does is alows the interest portion of that payment to be deducted in the current year. You can continue to do this the following years to still get the maximum 12 months of interest deductions.
Similarly, as a business owner that has expected payments due in December, its possible to speak with your customers and delay their payment until January, which would reduce your taxable income for the current yet. In addition, if you business is a Schedule C company, partnership or S corporation and your business taxes pass through your personal tax return you can reduce your taxable income by paying those business taxes early in December of the current year rather than waiting until April.
In Conclusion
We hope that this article opened your eyes to some lucrative tax saving opportunities that can help you reduce your expense this year. While not every individual will be able to use every tip in this guide, we recommend doing your research and utilizing as many of these clever tax saving methods as you have available to you. Every bit helps!
Sponsored Content
