Are you concerned that you are paying more in taxes than you should be? It’s certainly possible.
Tax laws allow for a number of deductions and benefits that can help you keep more of your earnings. These deductions are perfectly legal. In fact, most were designed to serve a specific purpose.
Talk to your tax professional to find out if you qualify for any of these tax deductions.
Investing in your individual retirement account or 401(k) is not only an incredibly smart move for your future, but it is also a good way to save money on taxes. Your employer deducts your 401(k) contribution from your account before taxes, which means that you are taxed on a smaller income. When you contribute directly to a retirement account, you can deduct those payments from your income tax filing.
College Savings Plans
College savings plans, or 529 plans, are special accounts that parents may open to help save money for their children’s future college needs. A variety of different savings plans are available, and the tax benefits available to 529 plan account holders vary according to state laws. In some areas, contributions are deductible from both state and federal income taxes. When signing up for this type of plan, make sure to ask about the tax benefits in your state.
Health Savings Accounts
Many of today’s health insurance plans offer a health savings account option to their members. Each of these accounts features both a deposit account that bears interest and an investment account. Similar to retirement accounts, if your contribution is deducted from your paycheck by your employer, your taxable income goes down. If you contribute to the account on your own, you can deduct your payments from your income tax filing. The IRS sets a maximum limit on how much a person can contribute to their HSA, and by contributing the maximum amount allowed, you can also maximize your tax savings.
Dependent Care Accounts
Like health savings plans, a dependent care flexible spending account may also be available through your employer. Like a health FSA, a dependent care FSA is also deducted from your paycheck before taxes. According to Kiplinger.com, most families will save more money on taxes by going the FSA route as opposed to deducting childcare expenses when they file their taxes, but you should do the math for your own family to make sure that this is true for you.
Many people turn to real estate as an investment. Even when the market is difficult, owning real estate can save you a great deal on your tax bill. You will also build equity as you pay down your mortgage. If you are renting out the property, you have the opportunity for a steady source of extra income in addition to your tax savings. Consult a real estate attorney for more information on investing in the real estate market.
A big part of successful financial planning is managing your life insurance. The right policy can also offer you tax savings.