Are you dreading tax time? Do you think that you are going to owe taxes and just don’t want to deal with it? Fortunately, there are ways to lower tax liability when you work with an accountant in the South Shore area. With these simple tricks, you can lower your taxable income which naturally lowers your overall tax liability.
Check out the simple ways to save on your taxes before you prepare your income taxes this year.
Contribute to Tax Advantaged Retirement Accounts
Does your employer offer a 401K plan? If so, join it and contribute. The money you invest is before taxes. In other words, it lowers your taxable income. It’s a surefire way to pay less taxes and as an added bonus, if your employer matches your contributions, you’ll increase your retirement savings. You can contribute up to $19,500 in the year 2020 in your 401K.
If your employer doesn’t offer a 401K plan, contribute to a traditional IRA. You can contribute up to $6,000 per year if you are under 50 years old and $7,000 per year if you are over 50 (catch up contributions). That’s $6,000/$7,000 immediately knocked off your taxable income, lowering your tax liability and possibly putting you in a lower tax bracket.
Contribute to a Health Savings Account
Do you have a high deductible insurance plan? If so, you may be eligible for an HSA. Like an IRA, the money you contribute to an HSA is before taxes. This lowers your taxable income. As an added bonus, if you use the funds for eligible medical expenses, the withdrawals are tax exempt as well.
In 2020, you can contribute up to $3,550 per year if you are an individual and up to $7,100 for families.
Itemize Your Deductions
The Tax Cuts and Jobs Act increased the standard deduction quite a bit. For 2020, the standard deduction for individuals is $12,400 and $24,800 for couples (married filing joint). If you have deductions beyond these amounts, you can itemize your deductions and lower your taxable income even more. The most common itemized deductions include:
Student loan debt interest – You may deduct up to $2,500 paid in student loan interest
Real estate taxes – You may deduct up to $10,000 paid in property taxes
Mortgage interest – You may deduct the interest on loans up to $750,000
Medical expenses – You may deduct medical expenses that are more than 10% of your adjusted gross income
If you plan to take itemized deductions, you’ll need to complete Schedule A in addition to your standard 1040. This form shows your itemized deductions and informs you of the necessary documentation needed to prove the deductions.
Start now planning how you will lower your taxable income to decrease your tax liability. If you need help and want advice from a reputable accountant in the South Shore area, call us today 773.599.0752 or visit our website QLB Accounting we’d be happy to help.