It's that time of year that people start to think about tax planning - and if you aren't then you should be! Once that clock ticks midnight on 12/31, there's not much you can do about your tax liability. Here are a few simple ways to reduce your tax liability and pay the IRS less.
Contribute to a retirement plan
his may be our favorite way to reduce your tax liability because it helps you now and in the future. If your employer offers a 401(k) and you aren't in it, then drop what you are doing and SIGN UP RIGHT NOW. Retirement plans are usually based on pre-tax earnings, which means the more you contribute the more you lower your taxable income. The biggest perk here Most employers offer a match for any money that you contribute, so if you are not in your job's retirement plan you are missing out on free money. Recent studies have found that Americans should be saving 15% of their pre-tax earnings each year.
Sign up for a flexible spending account (FSA)
Use business deductions
Have a CPA do your taxes (& talk with them throughout the year)
There are also some ways that we hear every year from clients that simply do not work for the majority of tax payers.
Gifts to Charity
While these are taxable deductions, the tax benefit is probably not as great as you think. In the COVID years, there was a direct benefit for tax payers for up to $600 MFJ for cash contributions, but as of today, that deduction has not been extended. This means that you have to have total deductions of over $12,950 single or $25,900 married filing joint for these to count. So if you want to give out of the goodness of your heart, please do so (and keep those receipts for state filings!), but it probably will not give much benefit to your federal taxes.
Unreimbursed employee expenses
Deducting mileage and actual vehicle expenses