Giving away your hard-earned money to the tax department can be a bitter pill to swallow, particularly when you have ideas for what you’d prefer to spend it on. You might know your legal obligation is to give a percentage of your earnings to the government, but do you really have to give as much as you are? As it turns out, not always.
While you will always need to file your taxes, you don’t always have to part with several thousand dollars, especially if you lower your taxable income in some of the following ways:
Rely on Professionals
Not everyone knows what they can and can’t claim, meaning the average person might be giving the tax department far more money than necessary. If you work with a highly skilled tax agent, you can rest assured they have the knowledge to help you claim as much as legally possible.
In addition to reducing your tax burden, tax agents can save you time by filing your taxes on your behalf. So, you can look forward to multiple benefits.
Open a Health Savings Account
Many people worry about whether they’d be able to afford healthcare if a problem arose, which is why there can be value in opening a health savings account. These accounts are available for employees with high-deductible health insurance plans and allow you to make pretax contributions you can use for healthcare at a later date.
Save More for Your Retirement
A recent survey found that more than half of Americans aren’t on track for a comfortable retirement. Putting aside more money than you currently do can improve your chances of solving this problem, but it might also solve a more immediate one – lowering your taxes.
Contributions to employer-sponsored retirement plans, such as a 401(k), are made pre tax through paycheck deferments. As a result, the money you set aside in a retirement account correlates to lower taxable income.
Consider Flexible Spending Plans
If you’re tired of giving the government tens of thousands of dollars of your hard-earned money, you might ask your employer about flexible spending plans. Flexible spending accounts are set up by your employer and allow you to set aside a portion of your income before tax for expenses, such as medical bills.
In 2022, employees could contribute a maximum of $2,850 to such an account, with this figure rising to more than $3,000 in 2023.
Take Maximum Business Deductions
Self-employed taxpayers are in a desirable position when it comes to their tax obligations. While they need to pay taxes just like their employed counterparts, several deductions can decrease that tax bill significantly.
If you’re self-employed, you might be able to make tax deductions for your home office, internet and phone bills, health insurance, meals, travel, and more. If an expense relates to your business, there’s a chance you’ll be able to deduct it and lower your taxable income.
Enroll in an Employee Stock Purchasing Program
If you work for a publicly-traded company, you might be eligible for an Employee Stock Purchase Plan. With such a plan, you can divert money from your paycheck into the purchase of company shares. You’ll usually also benefit from discounted stock prices as an employee. Most people in ESPPs contribute up to 10% of their income, with the maximum contribution limit set at $25,000 annually.
We all have to pay taxes, but that doesn’t mean we have to pay as much as we currently are. Take some of the actions above, and you should be able to keep more of your hard-earned money each financial year.