6 Ways to Reduce Your Taxable Income All Year Round
It’s easy to forget about your taxes once you submit your annual return each April. After all, a year is a long time and there is plenty of time to look ahead to next year, right? Well, if you can resist the temptation to ignore your taxes until next year, you can actually do some small things now and throughout the year to reduce your taxable income and save money on next year’s taxes.
1. Increase Your Contributions to Retirement
One very easy way to lower your taxable income is by increasing the amount of money you contribute to your retirement this year. Funds that you put into your retirement account are NOT counted toward your taxable income, and you can contribute up to $17,500 if you are under 50 years old and up to $23,000 if you are over 50. This is an easy win for you.
2. Move Some of Your Retirement Funds Into a Roth IRA
Unlike a traditional 401K, when you take money out of a Roth IRA in retirement, it is not taxed. Keep in mind, however, that you do pay taxes on the money going into the IRA. This is an especially effective strategy if you are concerned that taxes are going to go up significantly in the years around your retirement.
3. Health Savings Account
Like retirement contributions, you are not taxed on income that you put into your health care savings account. So, be aggressive here and make sure that you are covering any potential medical expenses you may incur in the next tax year. You can contribute up to $2,500 per year into your health savings account, reducing your taxable income by that amount.
4. Set Up a Child Care Reimbursement Account
If you have kids and spend money each year on childcare expenses, consider using a child care reimbursement account (through work) so that you can use pre-tax dollars to pay these bills. Again, this decreases your taxable income and allows you to save money on both ends.
5. Donate Appreciated Securities
Instead of donating cash to your favorite charity, you can instead donate appreciated securities that you have owned for more than a year. Doing this allows you to deduct the total value of the security on the date of donation. You are not responsible for the taxes on capital gain and the charity is not on the hook for this either. You should check with your favorite charity to be sure they can accept this type of donation.
6. Look Ahead at Your December Income
If you think that you may receive a large bonus in December, you can ask your employer if it is possible to postpone this until January of the following year. Also, if you are self-employed and have control over when you bill your clients, think about billing late in the month of December so that you receive the income in January. Postponing the receipt of large sources of income late in the year may help in the current year, but, of course, keep in mind it will eventually catch up with you.
Contact Success Tax Relief For Help Preparing Next Year’s Tax Season
If you want to plan ahead for next year, feel free to reach out to the pros at Success Tax Relief. With decades of experience helping our clients with tax preparation, we’re always willing and able to assist in anyway possible. Give us a call today at 877-825-1179.