Research shows that the average American pays close to $10,000 in income taxes every year. Many people don’t realize, however, that they could greatly reduce their tax bills by better understanding how income tax works.
Not all income is considered “taxable” income. Knowing what deductions you qualify for could help you reduce your taxable income, and thereby allow you to get a bigger refund.
Ready to learn some tax saving strategies that can help you keep more of your pay? Check out these helpful tips.
Contribute to retirement
Recent surveys show that only 41% of employees who have the option to contribute to a 401(k) do so. If you’re one of the 59% percent who don’t, it’s time to reconsider.
Not only is a 401(k) an effective way to save for retirement, but it also allows you to reduce your taxable income. Any income that you contribute to a 401(k) is untaxed. Workers under the age of 50 can contribute up to $18,000 a year, while older workers can contribute up to $24,000.
Give to charity
Money donated to a 501(c)3 charity organization can also be deducted from your income at tax time. If you make charitable contributions, make sure to hold on to receipts, canceled checks, and credit card statements. Also, if you donate more than $250, you will need confirmation from the charity of your contribution.
If you have money in investments or businesses, you may experience losses. If you lose more than you gain, you can deduct up to $3000 of your losses from your income. If you lose more than $3000, you may be able to carry over the balance to future tax years.
Of course, it isn’t a great idea to get married solely for the tax benefits. But if you’re currently cohabitating with a long-term partner, there may be financial benefits to tying the knot.
This is especially true if the two of you primarily subsist off of one income. The standard deduction for married couples is double that of single filers, and married couples can also earn more money at lower tax rates. So if you are working to support a partner who is a stay-at-home spouse or a full-time student, filing jointly could help reduce your tax bill.
Plan elective health care strategically
If you know that you’re going to need an elective surgery, such as a knee replacement or a hernia removal, you can save on taxes by scheduling your procedure strategically. You have the option to deduct out-of-pocket medical expenses from your income. If your insurance does not cover the entire cost of the surgery, your out-of-pocket costs could be substantial. If your employer offers a health savings plan, you can also contribute pre-tax funds that can be used towards co-pays, prescriptions medications, and other medical expenses.
Get more help with your taxes today
For many people, taxes are something they prefer to think about only once a year. But as you can see, saving money on your tax bill requires year-round financial planning. The right tax preparer will not only ensure that you get the biggest refund possible, they will also be able to provide you with tips for maximizing your deductions and credits in the coming year so that you can take a proactive approach to your financial health. Contact VTax today for a free quote and let our tax pros help you get your maximum tax refund … guaranteed!