No one wants to pay more taxes, which is why so many people look for ways to reduce their taxable income. After all of the time and energy that you put into work, you want to keep as much of your hard-earned money as possible.
Along with keeping more of your money, it is nice to be able to put some of it away into savings for the future. Fortunately, there are several ways to reduce your taxable income and save more of your own money
- Invest in the max on your retirement accounts
One of the easiest ways to reduce your taxable income and save for the future is to contribute the most you can to your retirement accounts. In many situations, you can have money deducted before it is taxed. There are limits to what you can contribute. With a 401(k) you can contribute up to $19,000 annually. That’s enough to make a big dent in your taxable income and to add a pretty penny to your future savings. If you don’t have a 401(k), you can talk to a financial advisor and arrange for other retirement programs that will help you reduce your taxable income.
- Get an HSA or FSA and fill it up
If you have a high deductible on your healthcare plan, you should look into a health savings account or HSA. To qualify, you need to have a relatively high deductible of $1,350 for yourself or $2,700 for your family. With an HSA, your employer can automatically deduct pre-tax money, so your taxable income drops. Like investment accounts, there is a limit to what you can deduct. When you pay for healthcare expenses, you do not have to pay taxes on them – even if you buy HSA-eligible items at local stores.
A flex spending account or FSA is another way to put your pre-tax money to use. This type of account can also help you pay for medical expenses. You can also use the money for child care or care for a relative with a disability. Employers usually have an open-enrollment period once during the year. Like the HSA, there is a limit to how much you can invest in an FSA.
Any money that you do not spend on healthcare expenses you can withdraw from the account when you turn 65 years of age. You will have to pay taxes on the money, as it will then be considered taxable income, but you won’t have any penalties.
- Talk to your tax professional
Taxes are complicated, and the laws are constantly changing. The best thing you can do is speak with your tax professional who can advise you on the best route to reduce your taxable income. The last thing you want is for the IRS to investigate you for something you did wrong. Make an appointment at the beginning of the end of the year, so your tax professional can help prepare you for the upcoming year.