5 Ways to Get Your Finances Tax-optimized
Optimizing your tax finances is not exactly easy yet it is certainly within the realm of possibility. As is often said, if you have the will, you will find a way. Instead of taking on this challenge as a DIY project that will chew up your time and cause frustration, consult with the experts. The tax planning specialists at The Normandy Group, located in Lakewood, CO are here to provide invaluable insight into the best ways to tax-optimize your finances.
Let’s take a look at some of the best strategies to manage your finances with tax mitigation in mind.
Fund Your Health Savings Account
One of the best ways to decrease taxable income is to contribute money to a health savings account, also known as an HSA. However, you will need a high-deductible health plan to fund such an account. Furthermore, the account must be funded in accordance with a specific timetable. Comply with all the requirements and you will have reduced your income that is taxed, facilitate planning for medical costs on the horizon and ultimately enhance your personal finances with posterity in mind. Those who are single can contribute upwards of $3,500 to health savings accounts. The limit extends to $7,000 for families and couples. Those who are 55 years old or older can tack on an additional $1,000.
Take full advantage of health savings accounts and you will have done your part to expand your nest egg as the money placed in such an account has three distinct advantages in the context of taxation.
- The money contributed to the account is added pretax.
- The funds can be withdrawn tax-free to cover medical expenses that qualify.
- Add in the fact that money you do not use is allowed to be invested in a retirement investment vehicle such as a 401(k) plan or an IRA with tax-deferred gains and you have all the more reason to take advantage of funding your health savings account.
Hike Those Retirement Contributions
It is in your interest to contribute as much money as possible to your retirement. In particular, individual retirement accounts are one of the best vehicles to grow your nest egg while deferring taxes. Contribute money to your IRA and you will have decreased your taxable income while saving money for retirement. Those who work as independent contractors are also empowered to make contributions that are tax-deductible to SEP IRAs, an acronym short for simplified employee pension accounts. The cap is 25% of net earnings, all the way up to a max contribution of $56,000 per year.
Take a Close Look at Your Withholding
Withholding too much will lead to an unnecessarily large refund, essentially providing the federal government with an interest-free loan of your hard-earned money. This money could be better used in the form of investments that may have the potential to appreciate throughout the year. However, those who err on the side of withholding too little are also making a mistake as they will owe a larger-than-expected bill to the IRS.
If you prefer to receive a larger refund as opposed to larger weekly paychecks, consider hiking the amount of taxes withheld throughout the year. Those who prefer more money in their weekly paychecks should file a Form W-4 with the employer to lower the amount withheld. If you have any questions about these strategies, do not hesitate to ask for assistance from the experts who provide tax planning in Lakewood.
Take Advantage of Tax Credits
Tax credits are especially important as they decrease taxes owed to the federal government dollar-for-dollar. As an example, based on a family’s income level, parents who pay for a childcare service such as daycare may be able to take advantage of the federal government’s Child and Dependent Care Tax Credit upwards of $3,000 per child or $6,000 per two or more children. If you paid for such childcare and would like to claim this dependent care tax credit, contact the provider of the service to obtain the total amount you paid for the service across the entirety of the year along with that provider’s tax ID. Families are also empowered to deduct upwards of $2,000 from federal income taxes for qualifying children under the age of 17.
Mind Those Deductions
The standard deduction is around double what it was in years past. As a result, tax filing strategies have changed. Though most people are aware of deductions that mitigate tax liability, the average tax filer does not know where to start. This is precisely why tax planning is so important. The tax experts at The Normandy Group can provide insight and help when it comes to understanding deductions, and whether you qualify. As an example, they can help determine if you are eligible for a deduction for medical expenses in the event that you endured a significant illness or had a major surgery during the year. If medical expenses exceed 7.5% of adjusted gross income in the prior year, they may be able to be deducted.
Those who donated to a good cause might be empowered to claim a deduction for charitable giving. As long as the required acknowledgment letters are in-hand and the donations were made by the last day of the year, there may be an opportunity to itemize them on the tax return to benefit from the deductions. When in doubt, lean on the experts who provide tax planning at The Normandy Group for assistance to determine if you qualify. The professionals are here to ensure you maximize your deductions with the overarching goal of keeping more money in your own pocket as opposed to Uncle Sam’s.
There is even a deduction available for entrepreneurs. Known as the qualified business income deduction or QBI for short, this deduction empowers those who own pass-through entities inclusive of partnerships and S-corporations to deduct upwards of one-fifth of aggregate qualified business income. However, there is an income ceiling applicable to this deduction that is unique to singles as well as those who are married and file jointly so be sure to consult with the professionals who provide tax planning in Lockwood.
The CERTIFIED FINANCIAL PLANNER™ Professionals and Certified Estate Planners™ at The Normandy Group offer serious financial planning for today’s complex world. By combining tax, financial, and estate planning strategies we can help you achieve your goals. Contact us today for a complimentary consultation.
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