Taxes are inevitable and a necessary part of life. We’ve all had that moment where we opened our paycheck and saw a big chunk of what we earned given to the IRS and government. It’s not cool.
However, there are some tax planning strategies you can use to keep or get back a little more of your hard-earned cash. Read on to learn about 5 tax tips to help make your pockets fatter.
- A Health Savings Account
Not only does opening up an HSA or Health Savings Account protect you from unforeseen medical costs, but it can also reduce your taxable income. You basically save money two-fold with this.
You’ll forget you even have the Health Savings Account, and when that rainy day pops up, you won’t have to scrape for funds to pay for it. Your bank account won’t have to budge. Make sure you have a high-deductible health plan when you do this.
- Make Your Retirement Contributions Higher
The more you put into a retirement account such as an IRA, the more you’ll save on taxes. You can save for retirement and reduce your taxable income all at once. IRA’s are wonderful for this sort of thing.
For the year 2020, you’re allowed to contribute as much as $6,000 toward your IRA if you’re under the age of 50. If you’re over 50, you’re able to contribute an extra $1,000 with what’s called a “catch-up” contribution.
- Your Withholding
You know how to pay your taxes, but it’s great to know how to make withholding tax work in your favor. Navigating your withholding taxes can be a bit tricky.
If you don’t withhold enough, you’ll have more money from your paycheck. But, you’ll probably owe the IRS come tax time.
If you withhold too much, you’ll get a far bigger refund from the IRS. However, you gave the IRS a loan they can pile up interest on for their benefit.
There are two types of deductions; standard and optimized. You can choose to use one or the other depending on your situation. The standard deduction is more straight forward.
If you’re married in 2020, the most standard deduction you get is $28,800 if you’re married and filing jointly.
The least deduction you can get is $12,400 if you’re single or married and filing separately. If you file as head of household, you’ll get an $18,650 standard deduction.
Itemized deductions for the year 2020 can be your mortgage, medical expenses, charitable contributions, and local and state taxes. Merit Tax Group is a great place to check for these.
- Tax Credits
Tax credits can be used as a dollar for dollar method of reducing your taxes. That’s why it’s one of the best tax planning tips around. If you have any qualifying children under the age of 17, you can deduct $2,000 as a “child tax credit”.
If you use a daycare or childcare service, you can deduct $3,000 with one child, and if you have more than one kid, you can deduct $6,000.
If you’re in the low or moderate-income bracket, you may qualify for an earned income tax break credit.
Tax Planning Strategies
These five great tips for tax planning strategies can save you tons of money come tax time. They can boost your wallet, and your retirement account while protecting you from unforeseen medical costs.
Don’t forget to check out our finance section for more smart tips.