Taxes, while a necessary part of civic life, don’t have to weigh you down.
You can chart a course to lower your overall income tax bill while staying within the bounds of the law.
By considering a few strategic moves, you can potentially keep more of your hard-earned money in your pocket.
Itemized deductions
Consider itemizing deductions instead of taking the standard deduction if your eligible expenses surpass the standard amount.
Deductible expenses can include medical costs, state and local taxes, mortgage interest, and charitable donations. The current personal deduction is high, so many people don’t benefit from itemizing today, but tax law could change at any time.
Keep accurate records and consult a tax professional to maximize your deductions.
Charitable contributions
Donating to qualified charities can reduce your tax liability.
Keep receipts for your donations and consider donating appreciated assets like stocks, which can potentially offer both a deduction and a way to avoid capital gains tax.
The shelter of retirement accounts
Contributions to retirement accounts like 401(k)s and IRAs can reduce your taxable income.
Traditional contributions are made with pre-tax dollars, lowering your current tax bill, while Roth contributions are made with after-tax dollars but offer tax-free withdrawals in retirement.
Catch-up contributions
If you’re over 50, take advantage of catch-up contributions to retirement accounts. These allow you to contribute more than the standard limit, providing additional tax advantages.
Tax-efficient investments
When selling investments, consider the tax implications.
Investments held for over a year generally qualify for lower long-term capital gains rates. If you have investments with significant gains, balance them with investments that have losses to potentially offset the tax impact.
Home sweet tax breaks
If you own a home, you may be eligible for tax benefits.
Mortgage interest and property taxes are deductible, potentially reducing your taxable income.
If you’re considering a home sale, be aware of the capital gains exclusion available for primary residences.
Education credits
If you’re funding education for yourself or family members, explore tax credits like the Lifetime Learning Credit or the American Opportunity Credit. These can provide direct reductions in your tax bill.
Professional guidance
As with any complex journey, seeking guidance from a professional can help ensure a smooth voyage.
Enlist the services of a certified tax professional who can tailor strategies to your specific situation. Tax laws are intricate and subject to change, and a tax advisor can help you stay current with the latest regulations and opportunities.
