It’s never fun when Uncle Sam comes knocking for his share of your income. Instead of just handing over your hard-earned money, you can take advantage of various ways to save on your taxes. From making a car donation to collecting tax credits, here are the top five ways you can save on your taxes:
Throw Extra Money Into Retirement
While putting money into your retirement account means holding off having access to it, it can greatly reduce your taxable income. More importantly, the money still belongs to you. Boosting your retirement contributions is one of the most powerful ways to reduce your taxes.
Even if your job offers a 401k or another retirement account, you can open an IRA. You can even open an IRA and put money into it up until April 15th. Your contributions will still count towards the previous year.
Open A Health Savings Account
A Health Savings Account (HSA) is another account that you can set up this year (before April 15th) to impact taxes for last year. The money you put into an HSA goes in pre-taxed, and you can withdraw it tax-free for qualified medical expenses. Money that isn’t spent from this account can go into an IRA or 401k.
If you’re single, you can contribute up to $3,500 each year. The number doubles if you’re married. Much like your retirement account, an HSA is money that you get to eventually use.
Find Tax Credits
There are tons of tax credits out there that reduce your tax bill. For example, did you know you can deduct up to $2,000 from your federal income taxes for each of your under 17-year-old children? There are also credits for parents who use daycare or childcare services.
What’s great about tax credits is that they lower your taxes on a dollar-for-dollar basis. That means you could go from owing $1,000 to getting $1,000 back with a single $2,000 tax credit.
Support Local Charities Through Car Donation
One interesting way you can earn a tax credit is through car donation. The idea is that you donate your car to a worthy organization. This organization may use the car for transportation, sell it to raise money, etc.
You can deduct the fair market value of the car from your taxes. The fair market value is essentially what that car is worth on the market today. If the organization you donate to sells the car, you can deduct the final sale price.
Find More Deductions
Most families take the easy way out of their taxes and just accept the standard deduction. To help bring down your taxable income, it’s worth looking for deductions. If you’ve had major surgery or suffered from an illness, there may be a deduction for you, for example.
New businesses can also take advantage of newer deductions. If you run or open a sole proprietorship, LLC, S-Corp, you may be able to deduct up to 20% of your qualified business income.
Make sure you talk to your tax professional to ensure that you file your taxes correctly and take advantage of the appropriate savings strategies.
