It’s that wonderful time of year again; when you pull out old receipts and bank statements in preparation for calculating and paying your taxes for the last year. Usually, doing your taxes can be a bit of a pain, not to mention sorrowful as you total up how much money you’re handing over to the government. If you have ever wondered how you can save on your taxes, look through this list of suggestions.
Reduce Taxable Income
One of the most straightforward ways that you can reduce your tax bill is by limiting your taxable income. An easy way to do this is starting a retirement plan, like a 401(k). The money you contribute into a savings plan does not count as taxable income, which can help you out tax-wise depending on how much you add every year. If you don’t have a retirement plan, consider putting some of your money in an IRA, which will usually become, at least in part, tax deductible.
A flex plan is a medical reimbursement account that you can use to hold your money until you need it to pay for medical bills. The plus side is that the portion of your salary that is absorbed into this account is then free from both income and Social Security taxes. If your employer offers you a flex plan, consider taking advantage of it.
Be Earth Conscious
The government offers various tax breaks for citizens who fit both energy-efficient home improvements and alternative energy equipment to their house. This includes new windows, doors, skylights, insulation, solar electric systems, solar hot water heaters, geothermal heating systems, and wind power systems. So if you are thinking of making some renovations to your home, look into some of the greener options to possibly qualify for big tax breaks.
Save for College
If you have children, putting money aside for their college tuition can be a great way to save on taxes, if you go about it the right way. Using a state-sponsored college savings account can render the added money exempt from taxes, while letting you maintain control. Also consider using a Roth IRA. While many people associate an IRA account with retirement, a Roth IRA lets you withdraw the funds at any time, without penalties or taxes, which is just fine for storing future college funds. An added incentive is the fact that Roth IRA accounts can provide steady annual growth, increasing your investment over the course of your child’s formative years.
Hire your Children
If you are in a position to hire your kids to work for you, doing so can have great tax advantages. You are legally able to deduct what you pay them, shifting some of your taxable income over to them. Keep in mind that if your child is under 18, he or she is not required to pay Social Security tax on the earnings.
Tax season is never fun, but it becomes a bit more satisfying when you see that you have made a savings on your taxes in the past year. If you still have questions about doing your taxes this year, hit us up on twitter or facebook or visit one of our many locations.