Tax bills often come as an inconvenient surprise. To help dodge the sudden financial headache, our experts at Paramount Tax Relief put together a list of easy steps you can take that could reduce how much you owe on your next tax bill.
Change Your W-4
A huge tax bill could result from your employer not withholding enough from your paycheck. Therefore, it might be worth it to increase how much you withhold by filling out another W-4 with your employer. You can change your W-4 at any time.
Contribute To Retirement Accounts
The IRS doesn’t tax on contributions to certain retirement accounts, like a 401(k) or a traditional IRA. By diverting income to such retirement accounts, you have less income to tax. These accounts have limits on how much you can contribute per year, however, so you can only reduce your tax bill so much using this method.
Save For College
Putting money away for college can have more benefits than just securing your or a beneficiary’s education. By contributing to qualified savings plans, such as the 529 plan, you can potentially receive deductions or credits for your state and local taxes, depending on your state. With a cap ($10,000) on how much of your state taxes you can deduct from your federal taxes implemented in 2018, lowering your state tax bill below the threshold will ensure you don’t pay federal taxes on the money you paid to your state.
Look For Pre-Tax Benefits Offered By Your Employer
There are many ways to turn your taxable income into tax-free benefits. Ask your human resources department about any pre-tax benefits offers. Such examples include flexible spending accounts, health saving account, and commuter benefits, among others.
Give To Charity
It’s no secret that charitable contributions are deductible. However, it may come as news to you that this doesn’t only apply to cash donations. As long as you itemize, donating clothes, food, or equipment is tax-deductible.
Sell Stock Losses
Losses on stocks can offset taxes on capital gains, whether it be investment gains or income. If your capital losses exceed your capital gains, you can deduct the difference, up to a limit of $3,000.
Apply For an Earned Income Tax Credit
Rather than reducing your taxable income like a tax deduction, an Earned Income Tax Credit offsets your tax bill dollar-for-dollar. Depending on your income, marital status, and how many children you have, you might qualify for a credit of greater than $6,000. For help applying for an Earned Income Tax Credit, give us a call.
Make Green Renovations To Your Home
Going green lets you keep more of your green – equipping your home with renewable energy improvements could earn you a tax credit. Such improvements include installing solar panels, wind turbines, and geothermal heat pumps. The credit is equal to as much as 30% of the cost of the venture, including installation, and there’s no limit on how much of a credit you can claim.
Time Your Expenses/Income When Possible
If you know you’re going to have a deductible expense soon after Dec. 31, such as an out-of-pocket medical procedure, you might be better off paying for it before the next calendar year so you can deduct it from your income this year. This is a two-way street: if you’re expecting to make less income the next year, see if you can arrange to receive capital gains after Dec. 31. For instance, ask your boss to delay paying a bonus or wait to invoice your clients until the start of next year to keep your current year’s income as low as possible.
Move To a Lower Tax State
Although this may seem extreme, relocating to a lower tax state could substantially reduce your tax bill. The difference between the highest and lowest tax burden states, New York and Alaska, respectively, is nearly 8 percent. If you have significant flexibility, moving could be the move.
Lower Your Tax Bills With Paramount Tax Relief
Navigating all possible options could be a daunting task for those without the tax know-how. At Paramount Tax Relief, we specialize in helping individuals find the optimal tax solutions. Although we’re located in Sacramento, we specialize in helping people nationwide, and it shows through our glowing reviews. For assistance with your unique situation, give us a call. To avoid future tax bills, let us help prepare your taxes.