You might be surprised to learn that the top 50% of taxpayers paid over 97% of all income taxes in 2018. Although taxes can be a financial nuisance for many people, there are tax planning strategies you can take advantage of to ease your burden.
Listed below are some of the most notable that you should consider.
1. Use a Health Savings Account
This is one of the most straightforward ways to save money when you pay taxes.
The money you contribute to a health savings account (HSA) reduces taxable income. For example, assume you made $55,000 last year and contributed $3,000 to your HSA.
Taxable income would immediately drop to $52,000. Combined with the other tips on this list, this can be a notably effective strategy.
2. Increase Your Retirement Contribution
Similar to using an HSA, contributing to a retirement account will also reduce your taxable income. The primary difference between the two is that the annual limit on your contribution to a retirement account is much higher than an HSA.
The amount you can reduce your taxable income will vary depending on certain factors. So, it’s best to research the IRS guidelines to take full advantage of these tax breaks.
3. Look For Deductions
Deductions exist in many different forms. For example, you can use a medical expense deduction if you have dealt with an illness or had major surgery. You can also deduct from your taxable income if you donate to charity.
Entrepreneurs can take advantage of many different federal tax deductions, as well. Keep these in mind moving forward, as they can quickly add up.
4. Leverage Tax Credits
Tax credits are a bit different than deductions. Instead of reducing your taxable income, they reduce your tax bill directly. One of the most common tax credits is a tax bill reduction for families who have children under the age of 17.
There are also tax credits for individuals who have low or modest incomes. Since the potential of tax credits is so high, it’s in your best interest to take advantage of all that apply to you.
Working with a tax professional can help ensure that you don’t overlook anything.
5. Find a Professional
Before you get started, it’s essential to check their past reputation.
This will provide insight into the type of results you get. You should also look for someone who works with people like you. For instance, if you aren’t a business owner and the tax professional often works with entrepreneurs, you should look elsewhere.
Be sure they’re communicative, as well. This will allow you to get the most out of the relationship.
Prioritize These Tax Planning Strategies
Consider the tax planning strategies in this article so that you can improve your financial situation. This will go a long way toward minimizing the amount you have to pay.
Feel free to reach out to us at Pacific Tax & Financial Group today. Our team of tax professionals can help get you started on the right track.