Surprised by how much you owe this year?
If your tax bill is high, it’s time to start prepping to lower it. Things like boosting your retirement savings, making use of government tax incentives, and opening flexible savings accounts can result in significant tax savings. So, stop struggling to pay back the IRS and begin saving with our top four tips below.
Boost Your Retirement Savings
Instead of putting money into a standard savings account (which does not lower your tax liability) consider contributing to a retirement fund like a 401(k) or 403(b). That’s because any amount that is contributed to a retirement fund like one of these lowers your taxable income by the amount that’s put in.
This means, that those who contribute might be able to get themselves into a lower tax bracket and in turn, owe less money to the IRS. This is especially good news for those that are on the cusp of a higher tax bracket and can offset any amount owed by contributing to a retirement fund throughout the year.
Consider Home Upgrades
Another idea for lowering your tax bill throughout the year is to take advantage of government incentives. With the help of things like the Inflation Reduction Act, it can offset energy-efficient purchases throughout the year.
For example, installing things like solar panels in a home and claiming them on your taxes can give you a 30% credit (up to $1,200) toward the purchase. More money can be credited if these updates include things like heat pumps or biomass stoves.
Regardless, if you are planning to do home upgrades in the next year it might be worthwhile to invest in products that offer a credit.
Get an Electric Car
If you’re considering a new car, consider buying an electric vehicle. Although the rules surrounding the tax credit can be confusing some might be eligible to get up to $7,500 off the price of an electric vehicle. This credit is dependent on a number of factors, so you’ll need to do research before buying the vehicle to ensure the credit is applied.
If you do decide to proceed, pay special attention to the vehicle’s components and where it was manufactured (since certain areas are disqualified). It is also good to note that only cars with a retail price of less than $55,000 and SUVs/pickups of less than $80,000 will qualify for the credit.
In addition to these stipulations, there are also some income restrictions to consider. If you’re single and have a modified gross income of more than $150,000 you are not eligible. Further, for married couples making more than $300,000 this credit cannot be applied to the purchase
Contribute to a Flexible Spending Account
Putting money into a flexible spending account allows you to set aside pre-taxed money for your healthcare spending. In 2023, the amount that could be contributed was $3,050 which can be used to pay for any out-of-pocket medical expenses.
This could cover things such as prescription medications, over-the counter-medicines, medical supplies (bandages, disinfectant, etc.), or medical equipment (crutches, wheelchairs, etc.) But, be sure to check that this amount will actually be used throughout the year. If it’s not used by the end of the tax year (or early in the following) then it may be forfeited and lost.
Ultimately, we understand how complicated taxes, tax breaks, and credits can be. That’s why we recommend keeping track of your expenses with a tax professional, like us at A.P Accounting and Tax Services. We can work directly with you to identify your tax obligations and where you can save.
If you’d be interested in learning more, give us a call at 407-328-5001.
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