How to Reduce Taxes?
It would be possible to rack up bigger savings through a well thought out plan all year round by following the ways to reduce taxes:
- If a big tax refund was received in the year, this would mean that too much money is being taken out of your paycheck. So by filling out a W-4 form (with your employer) that will make sure that more money is received to your paycheck when you earn it.
- Increase the amount of retirement savings and thereby lower the tax bill. It is possible to contribute up to $17,000 to a 401(k) or some such similar retirement plan. So money that is contributed to the plan will be included in taxable income.
- If the employer offers medical reimbursement account (a flex plan), you could divert a part of your salary to this account in order to pay medical bills and thereby avoid paying income and social security tax.
- A new child born or adopted is a tax return as an added dependent will qualify and will shave off $ 3,950 on taxable income.
- If alternative energy equipment is installed, a tax credit is available and would equal 30% of what homeowners spend on qualifying property such as solar hot water, electric systems etc.
- Be careful that beneficiary designations for your IRA’s and 401 (K) are up to date, as any IRA that goes to estate instead of a designated heir, very unfavorable rules will occur. It is a very critical question to ask how much an ira reduces my taxes?
- It should be noted that up to $250,000 of a profit from a home sale is tax-free, (which for married couples is $500,000 if they file as a joint return) if the house is being lived in for 2 of the 5 years leading up to the sale.
- Travel expenses could be included in medical deductions as the cost of getting to and from the doctor. The deduction is up to 50 dollars a night for lodging if the medical stay is from home. This is only for the individual, so if you are accompanying a child that is sick, the deduction could go up to $100. It should be noted that the tax benefit is only to the extent that the expenses exceed 10% of adjusted gross income. (7.5% for 65 or older)
- Some companies offer their employees the benefit of educational assistance that is tax-free each year, so that means that the company pays the bills, but it would not show up in the salary on the W-2. It is important to note that the course does not have to be job-related and that graduate level courses also qualify.
You should seek advice from a CPA firm to help you reduce taxes.