As we venture into a new tax year, optimizing your financial strategy can significantly impact the amount you pay in income taxes. Here are the top 5 strategies to help you reduce taxable income and keep more money in your pocket come tax season:
1. Maximize Retirement Contributions:
Contribute the maximum allowable amount to your retirement accounts, such as 401(k)s and IRAs. These contributions not only secure your financial future but also reduce your taxable income. Do note, there are income and eligibility limits and phaseouts to consider before making these contributions.
2. Leverage Health Savings Accounts (HSAs):
If you have a high-deductible health plan, consider contributing to an HSA. Your contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free, providing a double tax benefit.
3. Explore Itemizing Deductions:
Itemizing deductions can be a powerful tool. Deductible expenses may include medical expenses & mileage in excess of 7.5% of your Adjusted Gross Income, mortgage interest, state and local taxes, charitable contributions, and mileage. Analyze whether itemizing is more advantageous than taking the standard deduction.
4. Make Charitable Donations:
Boost your philanthropic efforts while reducing your tax liability by making charitable donations. Contributions to qualified charities are tax-deductible and can make a meaningful impact on both your community and your tax return. There are many strategies available within this space. Reach out to Cornbelt Financial to find out the best strategies to fit your specific needs.
5. Take Advantage of Tax Credits:
Investigate tax credits available for specific actions. For instance, consider solar and alternative fuel vehicle tax credits. Installing solar panels at home or purchasing an electric vehicle can not only benefit the environment but also provide valuable tax credits.
Bonus Tip: Education Credits and Tuition Deductions:
If you're pursuing higher education or have eligible dependents in college, explore education credits like the American Opportunity Credit or the Lifetime Learning Credit. Additionally, you may qualify for deductions related to tuition, student loan interest, or contributions to state-sponsored education plans such as a 529 plan.
Implementing these strategies can help position you for a more tax-efficient year. However, tax laws are complex and subject to change often, so it's advisable to consult with a tax professional like Cornbelt Financial to tailor these general strategies to your unique financial situation.
By taking proactive steps and staying informed about available deductions and credits, you can navigate the tax landscape strategically, reduce your taxable income, and ultimately pay less in taxes for the year 2024.
Adam Carr, MBA, EA