Best Ways to Lower Your Tax Bill

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It’s time to start thinking about your taxes.  With some careful planning, you can take advantage of money-saving tax breaks you may otherwise miss.  ezTaxReturn automatically prompts you to maximize your credits and deductions when you file with them, but it’s still a good idea to be familiar with what’s available.

Hold on to those medical and dental bills

Medical and dental bills can put a real strain on your wallet.  Fortunately, you can deduct unreimbursed medical care expenses for you, your spouse and your dependents. If you itemize, you can deduct the total amount that exceeds 7.5 percent of your adjusted gross income. Eligible expenses include doctor visits, lab tests, hospital stays and more. For a detailed list, please see IRS Publication 502.

Contribute to a 401k

Save for retirement and lower your taxable income at the same time by contributing to a 401k.  Most people can contribute up to $22,500 for 2023.  However, there’s an exception for those aged 50 and up.  Since they’re closer to retirement, they can make catch-up contributions up to an additional $7,500.

Save money in an HSA

If you have a high-deductible health plan, you can qualify for a Health Savings Account (HSA).  An HSA lets you save pre-tax money to pay for certain medical expenses. Enrolling in an HSA comes with three tax advantages.  The benefits are that your contributions are tax deductible, your balance grows tax-deferred and the withdrawals are tax-free if you use them for medical expenses.  For 2023, the contribution limit for individuals is $3,850 and $7,300 for family plans.

Exclude the profits from your home sale

Sold your home recently?  If so, you can exclude up to $250,000 of profit from your taxable income.  Those who are married filing jointly, can exclude up to $500,000.  To qualify, the property must be your main home and you must have lived there for two of the last five years.  However, the years don’t have to be consecutive.

Give away money to your favorite charity

Donating to your favorite charity can not only help someone in need, it can also reduce your tax bill.  If you itemize, you may be able to write off charitable contributions made to a qualified organization up to a certain limit.  Generally, your charitable contributions cannot exceed 60% of your adjusted gross income. You must keep a receipt for your records if you donate $250 or more.

Track your educator expenses

It’s not uncommon for teachers to dip into their own pockets to pick up things for their classroom.  If you do, hold on to those receipts.  Kindergarten through 12^th grade educators who work at least 900 hours a school year, can lower their tax bill by deducting up to $300 of unreimbursed expenses.  Qualified expenses include professional development courses, books, supplies, and computer equipment.  If you and your spouse are both educators and plan to file a joint return, then you can deduct up to $600.

Max out your IRA

The IRS doesn’t allow deductions for Roth IRA contributions but if you have a traditional IRA, you may be in luck.  As long as you and your spouse aren’t covered by an employer-sponsored retirement plan, you can deduct your full contribution up to the allowable limit.  Those who are covered by a work plan may only receive a partial deduction once their income reaches a certain level.  For 2023, the IRA contribution limit is $6,500 ($7,500 for people 50 and older).

See if you qualify for the EITC

The Earned Income Tax Credit was designed to give low to moderate income workers a financial boost.  It is worth up to $6,935 depending on your earned income, filing status, and family size. To take advantage of the benefit, you must file a tax return (even if you aren’t required to) and meet the requirements.  Don’t worry, ezTaxReturn makes it easy to claim all the credits and deductions you deserve so you get the biggest possible refund, guaranteed.

Deduct your student loan interest

Have student loans you’re paying back?  If so, you may be able to lower your tax bill by deducting up to $2,500 of the interest you paid during the year.  Keep in mind that the deduction amount gradually decreases as you earn more money.  Those who are married filing separately or can be claimed as a dependent on someone else’s return do not qualify.

Take the mortgage interest deduction

New homeowners can lower their tax bill by deducting the interest paid on mortgages up to $750,000 ($375,000 for married filing separate).  If you bought your home or were under contract by December 15, 2017 and closed by April 1, 2018, the limit is $1 million or $500,000 for married filing separate.  You can only claim the deduction if you choose to itemize.

Claim the standard deduction

One of the easiest ways to lower your tax bill is to claim the standard deduction.  For 2022, the rate is $25,900 for married filing joint, $19,400 for head of household, and $12,950 for those who are single or married filing separate.  Since the standard deduction is so high, it takes a lot of effort (and expenses) to make itemizing worth it.  Either way, ezTaxReturn automatically compares both, so you can choose the option that brings on the most savings.