If you’re looking for ways to reduce the dollar amount you spend on taxes every year, you’ve come to the right place. Here are five effective and above-board ideas to help you save on your taxes.
Consider Contributing to A Retirement Account
Contributions to a 401(k) or an IRA account reduce your taxable income, thus reducing the total amount of federal taxes you owe. What’s more, money that you divert to a retirement account grows tax-free until you retire. You could also consider contributing after-tax dollars to a Roth IRA. This doesn’t give you a tax deduction, but like a 401(K), the money grows tax-free and can be withdrawn tax-free when you retire. Make your contributions to a 401(k) at the end of the year, and tax-deductible contributions to traditional IRA accounts must be filed before April 18th.
Contribute to a Health Savings Account
Lower your taxable income by contributing to a health savings account, especially if you’re on a high deductible medical plan. Any contributions made to a health savings account grow tax-deferred and can be withdrawn tax-free, provided you use the money on health expenses. The account balance at the end of the year rolls over to the next year.
Look Into Flexible Spending Accounts with Your Employer
FSAs pay for any medical expenses with tax-free dollars by using payroll deductions (basically pre-tax dollars) to fund the account. This is a good plan for people who don’t have a high deductible health insurance plan. However, with an FSA account, money may be forfeited if you don’t use it by the end of the year.
Claim Business Deductions with Your Side Gig
Even if you have full-time employment, start freelancing on projects or take up a side hustle as a ride-share driver. This enables you to become eligible for tax and business deductions eligible for self-employed (full-time or part-time) individuals.
Check if You Qualify for A Home Office Deduction
If you’re self-employed or have a side hustle that works out of your home, you can apply for a home office deduction. These deductions include one-fifth of your rent and utilities if you use a spare room solely as an office or workspace.
