It’s tax season!
Time to freak out about everything!
Or… maybe it’s time to read up on all the ways you could be saving yourself a tax-induced headache this year. We’re talking about getting money after taxes instead of owing it.
The good news is we’ve done all the hard work for you and researched the many ways you can inch your way towards a better tax season this year.
Keep reading if you want to learn how to reduce your taxable income, make the most of the latest tax bill and boost your amount made after expenses.
How To Reduce Your Taxable Income with Health Related Items
There are more than a few ways to reduce taxable income when it comes to medical costs. From tax-exempt medical savings accounts to health-related deductions, here are some useful ways to lower your tax costs this season.
If you’ve opted into a high deductible health insurance plan, you’ll have the option to sack pre-taxed money away into a Health Savings Account (HSA.) If you were to max out your HSA contributions, it could save you up to $7,000 on your taxable income.
The money sits in an account where you can access it for medical needs. And if you haven’t used that money by the time your 65, you can pull it out tax-free.
Not to mention, you can invest your HSA money, so it grows over time. It’s really a no brainer.
Flexible Savings Accounts (FSA) also provide you a way to allocate pre-taxed money for out-of-pocket medical needs but there’s a catch with an FSA.
Unlike an HSA, if you don’t use your contributions, you’ll lose them.
Schedule Last-Minute Medical Procedures
We know this one sounds a bit crazy, but large, out-of-pocket medical expenses can be used as a tax deduction. So, if you think you’ll be paying more taxes this year and have also been putting off a major medical procedure… well, you make the call with your doctor, of course.
Investment Losses are Your Tax Gains
Sure, losing investments might sound like a bad thing most of the year, but come tax time they can be valuable.
Selling your investments at a loss lets you harvest losses, which in turn gives you the benefit of offsetting your taxes. This can spell tax savings of up to 3k. Nothing to scoff at, for sure.
Harvesting your investment losses can push you into a lower tax bracket and we all know that’s the ultimate end game when it comes to paying fewer taxes.
Plus, it can level out the cost of selling other winning investments that you’ll need to pay capital gains on.
Savings and Retirement Accounts that Can Do Some Heavy Lifting
There are a few ways to reduce taxable income and one of the best is to sack your money away into a retirement account.
The obvious choice is your 401k plan, but you can also contribute to an IRA if you’re not on an employer’s 401k plan.
You’ve got up to $19,000 that you can put into your 401(k) this year. For those of you closer to retirement and over the age of 50, you can put even more into your 401(k) at up to $25,000! Every bit you put into your 401(k) or IRA (which we’ll get to in a moment) will end up reducing taxable income. Fewer taxes now, more retirement income later!
Your IRA can receive contributions of up to $6,000 in 2019. If you’re over 50, it’s even more at a $7,000 cap.
Saving for your kids’ college tuition or maybe a beloved little on that isn’t yours? Opening a 529 allows your money to grow tax-free. While it’s a 529 is not exempt from your federal taxes, over 30 states have state tax laws on the books that’ll help out.
When you take into account that this latest tax bill has minimized the amount you can deduct on your state taxes, this can be instrumental in saving you some local-level tax money.
Take a Look at Your Deductible Expenses
Deductible expenses can be a complicated matter. Here’s a quick overview of some possible deductions you might have this year:
Save your receipts and make sure you deduct every dollar you’ve given to charity. Because giving is nice, but getting is a little bit nicer.
It doesn’t just have to be money, either. You can claim deductions on anything from donated clothes to donated cars.
If you’ve taken a big hit in the medical expenses department this year, you can deduct some of your out-of-pocket costs.
This year, you can deduct any medical costs not reimbursed, but only if those costs exceed 10% of your yearly income. But, this line item comes at a cost, since you’ll have to itemize your deductions.
Always keep track of your medical costs, because you never know when they’ll hit the threshold and this will become a feasible a necessary deduction for you.
Itemize Your Deductions or Hire a Tax Professional Who Will
Getting the most out of our taxes often has to do with making sure they’re done properly and thoroughly. Hiring a tax professional is a worthwhile investment.
And while the latest tax bill has gotten rid of being able to deduct those service costs, we still think the gained returns are worth it.
New Life Avenues That Can Save You on Taxes
Since many of these are large life decisions that should be weighed more carefully than just a tax-saving scheme, we’re going to bullet these life choices out and you can figure out if these paths are for you:
- Seek a higher education degree
- Have children
- Move to a new state with lower taxes
- Buy a home
- Appeal your property taxes
- Make energy efficient improvements to your home
Deduct Every Business Expense
We could write a whole new article as long as this that’s about all the deductions you’ll need to consider as a business owner. But we found this handy article packed with these insider tips that will help you out on how to get R&D tax credits.
If you own a business, don’t fear taking deductions because you think you’ll get audited. Claim the deductions you’re entitled to. That’s all there is to it. No the rules, abide by them and claim everything you can that’s a legitimate expense.
It’s a Lot of Work
Trying to get the most out of your taxes isn’t easy, but it’s worth it at the end of the day. With the above tips, you can become an expert on how to reduce your taxable income.
If you want to learn more about finances, saving money or getting out of debt, check out our blog. In the meantime, good luck out there this tax season.