Great Tax Reduction Ideas
Weekly Tax Tips
It’s time for action and tax reduction
There are numerous retirement tax plans that can help you reduce your taxable income. Employer-sponsored 401(k), 403(b), and SIMPLE IRA plans are among the most common examples of IRAs. The annual contribution limit for each plan is set, and if you don’t use it, it is lost. Look through your options and utilize the tax advantages to their fullest extent in each plan.
There are qualifications to be met and limits to be adhered to when it comes to the tax code. Please don’t hesitate to ask for assistance if you think one of these ideas for tax reduction might be of use to you.
Since the tax code is 75,000 pages long, it’s not surprising that there are many overlooked money-saving deductions hidden within it. The higher standard deduction amounts have led those who do not itemize to believe that there are no longer ways for tax reduction to reduce their taxes. Here are some great ways to reduce your taxes to consider since mid-year is a good time to review them:
You can still claim a charitable contribution deduction if you don’t itemize.
Even if you don’t itemize deductions, you can still claim a $300 charitable donation deduction ($600 if married). Just be sure to keep your receipts. Many people make donations, but few have receipts to back them up. This deduction expired on December 31, 2021, but may be extended. We’ll keep you advised.
Max out your HSA contributions.
When you have a high deductible health plan, you can lower your taxable income by contributing to a Health Savings Account (HSA). In addition to lowering your taxable income, you can pay for qualified medical, dental, and vision care with pre-tax dollars! Remember to contribute up to the annual limit ($3,650 for singles or $7,300 for married in 2022 PLUS an additional $1,000 if you are 55 or older).
Interest on student loans.
Even if someone else pays your student loans, you may deduct up to $2,500 in interest from your tax return. Paying interest on student debt is one of the common mistakes made by parents who co-signed student loans (creating legal obligation for the debt). Another way for tax reduction since they are now eligible to deduct interest on payments that they have made.
Itemized deductions can be leveraged to save money on your taxes.
Even though many taxpayers are unable to itemize, bundling several years’ worth of deductions into a single tax year could allow for more deductions in that year. For example, you budget and deduct for your favorite charity and church every year. Do not alter your regular practice, but prior to the end of the year, pre-pay all next year’s contributions by December 31 if it helps you to exceed the itemized deduction threshold. The next year, you may use the standard deduction with lower-to-no charitable deductions.
Donating appreciated assets that have increased in value (stocks, mutual funds and so on) is a great way to give.
Instead of donating cash, consider donating appreciated assets that you have owned for more than one year if you itemize deductions. Your charity will receive the same financial benefit, but you will also get a great charitable donation (the fair market value) as well as avoiding capital gains tax on the investment. A great tax reduction! This might be a terrific choice if you feel stuck in a down economy but do not want the tax exposure from selling a long-held stock.
The state refund is often claimed as income when it is not.
Remember that if you use the standard deduction, your state refund is not added to your taxable income. Even if you itemized in the previous year, your state refund might only apply if it provides a tax break. By coupling a large state tax refund with an itemized deduction rather than a standard deduction, you can save even more on your taxes.
You should take advantage of all state tax deductions.
Remember to itemize, because you can claim up to $10,000 in total taxes as an itemized deduction under the Salt Cap. Even if you don’t have much in the way of state income taxes or property taxes, you may still deduct state sales tax. Even better, if you have a small business, many states allow you to pay their tax at the entity level and avoid the $10,000 cap all together!
Taking full advantage of retirement accounts.
Retirement tax plans, such as 401(k), 403(b), and SIMPLE IRA plans offered through employers, are valuable tools for lowering your taxable income. Every plan has a yearly contribution limit, and if you don’t utilize it, it is lost. When reviewing alternatives, attempt to maximize the tax advantages in each plan.
Published August 1, 2022
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