Tax planning strategies boil down to two main objectives: reducing your taxable income and increasing your deductions. But not all tax strategies are created equal, and the IRS can sniff out a shady deduction or a cut corner, so you need to make sure your tax plan is solid. Here are some proven ways to reduce your tax burden and get as much money back as possible.
Put More Money in your Retirement or Health Savings Account
One of the best tax strategies you can employ is to divert some of your money to places where the IRS can’t claim it, namely, your retirement or health savings accounts. Tax-free is the operative phrase here and it makes good financial sense to divert some money early in the year as part of your tax plan. As an added bonus, you’ll have an extra cushion for your retirement and a little more money for medical needs, which is always welcome.
Get An Education
Going to school is a great way to cash in on tax credits. And you don’t need to be a first-time student either; returning collegiates can take advantage as well. If you’re a new student, you’ll qualify for the Hope Credit; if not there are Lifelong Learning credits available. We know that going back to school might seem like an unconventional aspect of tax planning strategies, but it definitely makes good financial sense. You’ll get a break on your taxes while learning a new and helpful skill. The classes don’t need to be related to your career, but why not take the opportunity to make yourself more knowledgeable? It’s a win-win for you!
Clean Up Your Portfolio
This one gets a little tricky for laypeople, so definitely consult your tax advisor and accountant before you start to dump your stocks. One of the more underutilized tax strategies, cleaning your financial house with the help of a professional can help lower capital gains and allow you to invest in higher performing entities. You can cut the dead weight, but definitely don’t try this tax planning strategy alone. You’ll definitely need professional guidance to pull this one off.
Max Out Your Flexible Spending Account
Tax season stressing you out? How about some massage therapy? It’s covered under your FSA (Flexible Spending Account) and you should take advantage of that as well as countless other FSA eligible purchases before the fiscal year ends. One of the smartest tax strategies is getting an FSA and then using it during the year. If you have any left over at year’s end, you’re leaving money on the table. So get a massage, stock up on sunscreen or medicine, get yourself some new reading glasses and get your annual supply of vitamins or supplements. Remember, it’s use it or lose it!
Give Your Family Some Presents
One of the most effective and well-known tax planning strategies is to utilize the gifts tax loophole, which states that you can give up to $14,000 of your assets to your family. This tactic is very useful for people who want to minimize their assets and maximize their deductions, but anyone can use it. Gifts qualify as a deduction and they’re a smart yet simple way to get that adjusted gross income down.
Withhold More Money
Withholding more money is the unsung hero of tax planning strategies! It involves a small short-term sacrifice in exchange for a long-term pleasant payout. Increase your tax withholding at the beginning of the year. You’ll feel a slight sting in your first few paychecks, then completely forget about the withholding until tax-= time comes around. What will you do with your huge return? New car? Caribbean vacation? Use the IRS as a substitute bank account and enjoy that nice chunk of change in April.
If you’re ready to start doing your taxes the smart way, with proven tax planning strategies, you need to talk to a tax advisor to set up your tax plan and figure out the right way to hit those two objectives: reduce taxable income and increase deductions. The professionals at Advanced Accounting are skilled experts who will help you craft a unique and effective plan so you can cut down your taxable income while staying off the IRS’ radar. With years of financial experience, multiple accreditations and a passion for helping people like you get the most out of your tax returns, you can trust Advanced Accounting to help you with tax strategies that will work!