Tax season is quickly approaching, and nobody wants to have additional debt when it comes time to file in April. You can, however, use a variety of clever techniques to lower your tax liability and overall tax debt.
You can postpone paying income taxes if you contribute the maximum amount to your retirement account or accounts. IRAs and 401(k)s are two examples of retirement funds that offer some of the best ways to deduct taxes. You’ll be saving for the future in addition to lowering your tax burden.
In 2023, the maximum allowable deduction for 401(k) contributions is $22,500, exclusive of employer contributions. You can add extra catch-up contributions to your 401(k) in 2023 if you’re over 50. The maximum amount you can contribute is $7,500 annually, or $30,000. The highest tax-deductible contribution to an IRA for 2023 is $6,500, or $7,500 if you are over 50.
Consider requesting a deferral if you anticipate receiving a bonus or additional payment near the end of the tax year, regardless of the tax year. This could be a lump sum payment as a freelancer or a holiday bonus from your employer. Why are the payments being postponed until the next year? Your tax obligation on this additional income will be postponed until the next tax year.
If you purchase additional office supplies, a computer, or a new desk for the upcoming year, you can deduct a sizable amount if you do so before the year ends. To save money on taxes now and ensure you have the supplies you need in time for the upcoming year, think about making large business purchases before the end of the year.
In case your medical insurance plan has a higher deductible, you have the option to make additional contributions to your health savings account (HSA). You can deduct your HSA contributions from your taxes and use them to cover essential medical costs. Your health insurance plan must have high deductibles that either match or exceed the IRS’s required amounts, and it must have the highest annual out-of-pocket cost ceilings that comply with IRS regulations for you to be eligible for an HSA.
Your tax liability can be reduced by a variety of tax credits. To mention a few, there is the American Opportunity Tax Credit, Child Tax Credit, and Earning Income Tax Credit. To minimize your tax liability and claim all of the available tax credits, it’s critical to conduct some research or consult with a tax professional.
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