Here’s a list of 4 tips that will go a long way to saving you from unnecessary taxes
Make the most of your working advantages.
If you want to save money on taxes right away this year, your employer-sponsored retirement plan might be the way to go.
To begin, inquire with your company about the types of retirement plans that are now available. Because these are widespread alternatives, you may hear the words 401(k), 403(b), or Thrift Savings Plan. These accounts allow you to set money away from your paycheck to invest in assets that will help you build a better retirement portfolio over time.
Municipal Bonds are the go-to investment
Purchasing a municipal bond entails lending money to a state or local government for a certain number of interest payments over a set period of time. The full amount of the original investment is reimbursed to the buyer once the bond reaches its maturity date.
Municipal bond interest is tax-free at the federal level, and it may also be tax-free at the state and local level, depending on where you live. Historically, municipal bonds have had lower default rates than corporate debts and they go a long way to saving your extra money from taxes.
Set up a health savings account.
Contributing to an HSA is another way to reduce your taxable income.
You can contribute up to $3,500 if you’re single and the limit goes up for couples and families up to $7,000 per person. You can even get an extra $1,000 if you’re 55 or older.
HSAs are also an excellent method to supplement your retirement savings. The money is deposited pre-tax, and you can withdraw it tax-free for approved medical expenses. Any money you don’t need can be invested, and the profits are tax-deferred, just like an IRA or 401(k) plan.
Look for deductions.
The Tax Cuts and Jobs Act increased the threshold for those who can itemize their spending, requiring you to exceed the 2019 standard deduction of $12,200 for singles and $24,400 for married couples filing jointly. Nonetheless, if you underwent significant surgery or were diagnosed with a serious illness, the medical expense deduction is one of the few tax benefits currently available to individuals.
Medical expenses that exceeded 7.5 percent of your adjusted gross income the previous year can be deducted. Furthermore, if you donated to a worthy charity, you may be eligible for a charitable deduction. The tax plan also includes a deduction for business owners, Qualified Business Income (QBI), which allows owners of “pass-through” businesses, such as S-corporations and partnerships, to deduct up to 20% of their taxable income.
Claim all Tax Deductions you qualify for
The Earned Income Tax Credit is one of numerous IRS tax credits that lower taxes. Low-income taxpayers get credits of up to $6,728 if they have three or more qualified children, $5,980 if they have two, $3,618 if they have one, and $543 if they have none.
The American Opportunity Tax Credit provides a maximum of $2,500 per year for eligible students throughout their first four years of higher education, while the Lifetime Learning Credit provides a maximum 20% credit for up to $10,000 in qualified costs or $2,000 each return.