Though March is the season for all things St. Patrick’s Day, it’s also less than a month from Tax Day on April 15. Fortunately you don’t need leprechauns or the luck of the Irish to reap your own tax rewards—you just need to follow a few simple strategies that can save you on your taxes, year after year.
From charitable contributions to W-4 withholdings, the pros at Vickney & Associates share five things you can do:
- Add to your retirement accounts. Having more deducted from your paycheck into your 401(k) alleviates your income tax burden. In 2020, you can sock away up to $19,500 that’s tax-free. If you’re 50 or older, you can save an additional $6,500 ($26,000 total). If you’re self-employed, you can reap these same benefits by opening your own 401(k). Contributing more to a traditional IRA or Roth IRA is also a good way to save on taxes.
- Set it aside for college. If you have college-bound children living at home, a 529 college savings plan is a smart way to save for their tuition while saving on your taxes. You can’t deduct the contributions on your federal returns, but you can on state returns since these plans are implemented at the state level. One thing to note: you may incur a gift tax for annual contributions to a beneficiary that’s more than $15,000.
- Fund your FSA or HSA. Allocating money towards your Flexible Spending Account (FSA) or Health Savings Account (HSA) is also a wise way to lower your tax bill. The FSA limit in 2020 is $2,750; plus some employers may let your carry over up to $500 for the following year. The contribution limit on health savings accounts for 2020 is $3550; if you have family high-deductible coverage, that figure goes up to $7,100 for 2020.
- Give to charity. Any contributions you make to a qualifying charity are tax deductible. This goes beyond cash to include donated items such as clothing, furniture, and vehicles, as long as you have a receipt.
- Adjust your W-4. A W-4 form is the one you use to designate how much tax you want your employer to withhold from each pay period. If you paid too much in taxes, raise your withholding so that you’ll owe less next year. If you got a giant refund, reduce your withholding so you don’t have to live on less of a paycheck throughout the year. You can adjust your W-4 form at any time.
Bonus Tax-Saving Strategy: Consider Hiring a Professional
Since tax laws are complicated and ever-changing, it will actually save you hassle and money in the long run to have a professional prepare your taxes. Many of us don’t fit the “simple tax scenario” where we can get the most from tax preparation software: single, no dependents, no investments, and no income beyond a salary. That’s why families and businesses trust our team at Vickney & Associates for tax planning and preparation. We’ll help you discover the “pot of gold” you deserve each tax season—contact us to schedule an appointment that’s best for you.