While taxes are inevitable, you want to make sure that you’re not paying more than you have to. You can legally reduce your taxes by using strategies that you may not be aware of.
Retirement Contribution
A simple way to reduce your taxes is by making retirement account contributions. You can make these contributions to any traditional IRA until the filing deadline in April. The amount you owe in federal taxes will be reduced as a result of 401(k) and IRA accounts being deducted from your taxable income.
If you have a Roth account, it’s funded with after-tax dollars. This doesn’t equate to a tax deduction, but the money in the account is tax-free even in retirement.
Deferring Income
By deferring your income, such as year-end bonuses, you can reduce your tax burden for the year. The amount of taxes reduced depends on the amount contributed over the year.
While you are able to defer wage and salary, it’s often more difficult for taxpayers to do so. It’s in your best interest to defer income if you will remain in the same tax bracket or lower the following year. This is to prevent a larger tax bill in the future. If you believe you will be in a higher tax bracket next year, you can accelerate income so that you can pay it on a lower bracket now, than a higher bracket later.
Deductions for Military Members
Being a member of the military reserves and traveling more than 100 miles from home qualifies you for a deduction for unreimbursed travel expenses. Eligible expenses include transportation, meals, and lodging.
As an active-duty service member, moving costs for permanent station changes can be deducted.
Flex Plans
Flexible spending accounts are fringe benefits offered by employers to steer part of your pay into a special account. This account can be used to pay bills for childcare and medical expenses.
The money in flex accounts is free of income and Social Security taxes. However, there is a use-it-or-lose-it rule that can forfeit the excess money that isn’t used by the end of the year.
Is there a way to reduce tax debt?
Tax debt relief is available, and can come in different forms for eligible cases. At Optima, we assist our clients by using programs such as the IRS Fresh Start Program. Give us a call at (800) 536-0734 for a free consultation today.