If you’re like most people, the only time you think about taxes is when the deadline for filing a return is looming. That’s not the best approach to take if you want to reduce your taxable income though. Effectively reducing your income taxes takes forethought and planning. Do you know what you can do?
Participate in Your Job’s Retirement Plan
Did you know that contributing to a retirement plan provided by your employer could reduce your income tax liability? You can deduct contributions made to 401(k) and IRA accounts from your taxable income.
That allows you to reduce the amount of taxes you owe. You won’t have to pay any taxes on that money, or any interest it earns until you retire and begin to withdraw money from the plan account. Just remember that retirement plans often have yearly contribution limits you’ll need to plan around.
Contribute to an HSA
If your employer offers a health insurance benefit, look to see if they offer a plan with an HSA. HSAs help you pay for healthcare expenses, including any dental costs. Like 401(k)s and IRA accounts, contributions made to an HSA are made with pre-tax dollars. Unlike these retirement accounts, however, the money you take from an HSA isn’t taxed as long as it’s used for qualified medical expenses.
Keep in mind that healthcare plans that offer HSAs are typically high-deductible plans, so they aren’t a perfect fit for everyone. Still, they are a great way to lower your taxable income.
Claim Business Deductions with a Side Hustle
Do you have a side hustle? If so, you have the chance to claim business deductions that could net you some sweet tax savings. You could deduct business expenses like marketing, materials, supplies, shipping, or other costs you incur while running your business. Some insurance premiums, including those for health, dental, and long-term care insurance, may be deductible as well. Navigating business deductions can be tricky to get right on your own, so consider working with a tax professional.
There are plenty of other ways you can reduce your taxes too. If you have a home office, you may be able to use a home office deduction. You may be able to write off business travel expenses (even on vacation), deduct half of your self-employment taxes, deduct charitable donations, or even deduct your private mortgage insurance premiums. Not sure what you qualify for? Talk to a tax preparation specialist to see what else you can do to reduce your income taxes.
Did you enjoy reading this article? Here’s more to read: How to Make Sure Your Sensitive Financial Information is Secure
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