The 3 Best Things To Do To Reduce Your Tax Bill
It is no fun getting a tax bill when you do your return. Very often it is unplanned and you never really know how much you will owe. This makes it very hard to budget and can throw many plans off when you get an unexpected bill. Since many people are having a hard time making ends meet these days and are opting for tax relief services, it is important to save as much as possible.
The best thing to do is to try to reduce what you owe for taxes every year to get that bill down. In some cases, you may even be increasing what you get for a refund. There are a lot of ways that you can find to save a little bit here and there. These things add up and the savings can be considerable. In this article, we will go over what you can do to reduce your tax bill going forward.
Max out your retirement account
Taking a big chunk of your income away and not having to pay taxes on it will save you money in the short term. In the long term, it will put even more money in your pocket than just the initial savings. This means that putting as much as possible into your retirement accounts is going to save you quite a bit on your taxes.
If you have a retirement account like an IRA then you are allowed to put in as much as $20,000 per year tax-free. This means that you will not be taxed on that portion of your income.
At the same time, it is collecting interest in your account and will be worth far more than what you saved when it comes time to use the money for your retirement.
Understand tax credits
There is a difference between a tax deduction and a tax credit with credit being much more desirable. When you find tax credits to take advantage of then you end up saving far more money. A tax deduction simply takes away the money that would be owed on the tax of a portion of your income. A tax credit is an actual dollar amount of taxes that you will not owe and may even get in the form of a refund. An example would be that you get a credit for the Earned Income Tax Credit that gives you a break of up to $6,935 depending on how many children you have.
Find out which ones you qualify for and then claim them and you will see a massive reduction in what you owe.
Make a Health Savings Account (HSA)
Medical bills are the most common way that people end up in bankruptcy. You can kill two birds with one stone by making sure that you have money for a medical emergency while also saving money on your taxes.
The money that you put into a HSA account is not taxable income. You’ll save on taxes for that amount and then have money set aside in case of an emergency. You’re able to put up to $3,600 per year into the account tax-free.
