Benjamin Franklin once said that “In this world nothing can be said to be certain, except death and taxes.” Although you can’t completely avoid your tax obligation, there are things you can do to reduce the amount you owe each year. Here are some basic tax-saving strategies everyone needs to know.
Review your paycheck withholding
A tax refund isn’t free money from the government. It usually means that you paid too much in taxes during the year and now you’re getting the excess back. Review your withholding at the start of each year to ensure you have the appropriate amount withheld. If you received a large refund and would rather increase your take-home pay, adjust your withholdings to pay less taxes during the year. If you owed money, submit a new W-4 to your employer so more taxes are withheld from your pay.
Max out your 401k
Maxing out your 401k can bring you closer to achieving your retirement goals while reducing your tax bill. When you contribute to a 401k, the money comes out of your paycheck before taxes are deducted. As a result, you’ll have less taxable income and may pay less taxes when you file your return. The contribution limit for 2023 is $22,500. Those aged 50 or older can make catch-up contributions up to $7,500. Even if you can’t afford to max out the account, at least contribute enough to receive your full employer match. It’s free money so don’t let it slip through your fingers.
Contribute to an Individual Retirement Account (IRA)
If you and your spouse aren’t covered by an employer retirement plan, consider opening a traditional IRA. Your contributions may be tax deductible, and your earnings will grow tax-free until you start taking distributions. For 2023, the maximum limit is $6,500 ($7,500 if you’re at least 50 years old).
Claim all the money-saving tax credits and deductions you can
The IRS offers a bunch of tax credits and deductions which can save you hundreds or thousands of dollars, but many taxpayers fail to claim them. One out of five eligible workers miss the Earned Income Tax Credit annually. It is worth up to $6,935 for a family with three or more kids. Another tax break that’s valuable for families is the Child Tax Credit. For tax year 2022, it is worth up to $2,000 for each qualifying child. Ensure you get all the money-saving credits and deductions you deserve by doing your taxes with ezTaxReturn.com. It’s fast, ez and you’ll get the biggest possible refund, guaranteed.
Save money in a 529 plan
A 529 plan is a tax-advantaged account designed to help families pay for K-12 private school tuition or higher education expenses (college, trade school or vocational school). You don’t pay any income taxes on your earnings and your withdrawals are tax-free when used for qualified education expenses. Another major perk is that most states allow you to deduct your 529 plan contributions when you file your state income taxes.
Fund a Flexible Spending Account (FSA)
A flexible spending account (FSA) is an employee benefit that lets you set aside money for medical expenses. For 2023, the contribution limit is $3,050. The money is deducted from your paycheck before taxes, so you won’t pay any income taxes on your contributions. The downside is that if you leave your job, you can’t take the money with you. Plus, you must use the full amount by December 31st, or you lose your FSA dollars. Some employers allow you to carry over an unused portion, but you’re limited to $610.
Contribute to a Health Savings Account (HSA)
If you’re enrolled in a high-deductible health plan, you may qualify for an HSA. An HSA is a savings account that lets you set aside pre-tax dollars to pay for qualified medical expenses. Contributing to an HSA has three tax benefits. Your earnings grow tax-free, your withdrawals are tax-free if the money is used for eligible expenses, and your contributions lower your taxable income, so you pay less in taxes. The 2023 maximum contribution limit is $3,850 for individual coverage and $7,750 for family coverage. You contribute even more once you turn 55 years old. The contribution limit is $4,850 for individual coverage and $8,750 for family coverage.
