VWB Blog In life, there are only two things that are certain: death and taxes. You have to file taxes because if you fail to do them, you can get in a lot of trouble.
While you can’t escape them, there are ways that you can reduce your taxes. Yes, you read that right. There are legal ways to cut your tax bill.
Read on to learn the latest tax bill reduction strategies.
Contribute to a Retirement Account
One of the best ways to save on taxes is by contributing to a retirement account. If you aren’t saving up for your retirement, now’s the perfect time to start. Consider this to be your incentive.
So, how does it work? Less taxable income means less tax. You can do this by contributing to a traditional 401(k).
You can contribute up to $20,500 in 2022. Those who are 50 and older can contribute an extra $6,500 in 2022. The IRS won’t tax the money if it goes straight from your paycheck to your 401(k).
Another option is to contribute to an IRA account. There are also Roth accounts. The amount of money you can contribute to these accounts does vary.
Open a Health Savings Account
Do you have a high-deductible healthcare plan? If you do, you should consider using a health savings account (HSA). Doing this can help you reduce your taxes as you pay for medical expenses.
Your HSA contributions need to be deducted from your payroll to be excluded from your taxable income. Contributions can be matched by your employer without issues.
The max individual contribution limit for 2022 is $3,650. For families, the max contribution limit is $7,300. Those who are 55 or older can contribute an extra $1,000.
The money can grow in the HSA. While it sits in the HSA, there isn’t any need to pay tax on the earnings.
There’s another tax benefit that comes with using an HSA. Withdrawals are tax-free. This is the case when withdrawals are used to pay for qualified medical expenses.
Claim Tax Credits
When it comes to taxes, you need to be well-versed in IRS tax credits. The average taxpayer might not know that there are so many tax credits they can claim to reduce their taxes.
One of the tax credits you must be familiar with is the Earned Income Tax Credit. This specific tax credit can give you money back at tax time or lower the federal taxes you owe. It’s meant to help low-to-moderate-income workers and families who need to get a tax break.
The rules can get tricky, so pay attention. If you’re a low-income taxpayer, you can claim up to $600 in 2023, if you don’t have children. If you have one child, you may claim up to $3,995.
If you have two children, you may qualify for a credit of up to $6,604. Three or more qualifying children can get you up to $7,430.
Let’s move on to the next tax credit you need to know about. The Child and Dependent Care Credit can help you offset expenses for the care of children. This credit can also apply to expenses for the care of disabled dependents.
This credit is dependent on your income. You might not qualify for it if you have a high income. You should also know that it only covers qualified expenses.
The American Opportunity Tax Credit is for college students who are seeking to earn a degree. This credit covers the first four years of higher education. Students who are eligible may claim up to $2,500 per year.
Are you looking to save for retirement? Take advantage of the Saver’s Credit. If you’re eligible, you can receive a credit of up to half your contributions made in your retirement plan.
Make Charitable Contributions
It pays off to be nice. You can deduct charitable contributions to lower your tax bill. These contributions include anything from cash to household items.
You have to make sure that your donations go to a bona fide charity. Do ask for a receipt as you’ll need one to claim the deduction.
Itemize State Sales Tax
A good tax bill reduction strategy involves itemizing your state sales tax. This is one action you can take if you itemize your deductions and live in a state without income taxes. It’s known as the state sales tax break.
If you plan to use this tax break, you’ll need to complete the Schedule A form. This specific tax break is capped at $10,000 from all sources. It’s best if you keep track of all your major purchases so you can add on the sales tax acquired from the purchases.
Use Your Side Hustle to Claim Business Deductions
Having a side business is a great way to supplement your income. It also offers many tax advantages.
If your side business requires you to work from home, you should claim a deduction for your home office. You may also be able to deduct a portion of your Internet if you use it for your business.
Other business deductions you can make include business-related travel and office supplies. Business-related vehicle mileage is another deduction you can make.
These strategies should be part of your tax savings plans. Do keep in mind there are other tax planning strategies that you should know about. Click the link to learn more about them.
Use These Latest Tax Bill Reduction Strategies
Paying taxes is one thing that we must all do. You can cut your tax bill by having money management skills. Using these tax bill reduction strategies can also help you reduce your taxes each year.
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