One of the most significant financial reliefs one could have is a lower tax bill. Here are some simple tax-saving strategies that can help you pay less tax this fiscal year.
Contribute towards your retirement account
Saving for retirement may not seem like the most exciting use of your income, but setting aside how important it is, it is one of the best ways to lower your tax bill. The IRS allows you to deduct most types of retirement contributions from your net taxable income or adjusted gross income (AGI).
Some of the most common tax-saving options are:
- IRA: You can contribute up to $6,000 annually to an IRA, along with catch-up contributions of up to $1,000 for those above 50.
- 401k: Did you know you can contribute up to $19,000 to a 401k plan in 2019? Additionally, you can lower your taxable income by up to $19,000, or $25,000 for those above 50, through these qualified deductions.
Save for college
If you want to return to college or want to save for the college education of your new-born child, nephew, or niece, opening a qualified tuition plan or 529 plan is the right way to get started. However, it is critical to note that different states have different eligible deduction limits. Since you can receive deductions only against state taxes, it is advised to do some research. Here is a list of how much deductions your state allows against 529 contributions.
Take up a new course
The IRS provides tax breaks for your higher education or learning activities throughout your life. Through Lifetime Learning Credit, you get credits of up to $2,000 or 20% of your first $10,000 spent on education every year, as long as your annual income is below $67,000 in a single year.
Health Savings Account (HSA) can help you reduce taxes
A recent report indicates that high deductible health plans are becoming more common in the US against traditional health coverage. Nearly 70% of employers offer at least one high deduction health plan to their employees. The good news is that you can contribute to a Health Savings Account or HSA to cover for your out-of-pocket medical expenses. The IRS allows tax deductions of up to $7,000 for HSA contributions.
Additionally, you can deduct qualified medical expenses from your tax bill if they exceed 10% of your annual income. Make sure to preserve those medical bills for tax calculations.
Itemize your deductions if they exceed standard deductions
Standard deductions offer one of the biggest tax breaks you can get in a year. As per the latest rulings, you can deduct up to $12,200 for individual filers, $24,400 as married filers with joint filings, $12,200 for married filers with separate filings, and up to $18,350 for the head of households. However, if your deductions are higher than these standard limits, it makes perfect sense to itemize them. You can seek help from a tax professional or use suitable tax software to itemize your deductions.
The Bottom Line
If you're ready to spend a weekend towards tax preparations, you can save thousands of dollars in taxable income every year. Make sure to find professional help whenever necessary.