Wednesday, May 22, 2024

How to Save Money on Taxes

Anyone’s day can be ruined by an unexpected tax bill. Fortunately, there are some steps you can take to help avoid this unpleasant surprise with the help of a tax attorney chicago il. It starts by making a little extra effort to itemize your taxes so that you can take advantage of these tax tips.

Save Taxes by Tweaking Your W-4

Ask your employer to allow you to fill out a new W-4. By raising your withholding, you’ll owe the IRS less money when it’s time to file your tax return. Of course, this is one of those tax tips that works both ways in that when you receive a huge refund; you may want to reduce your withholding, so you aren’t living on less of your paycheck than necessary.

Save Taxes by Stashing Money in Your 401(k)

When you have less taxable income, you’ll pay fewer taxes. One of the most popular ways of making this happen is through a 401(k) because the IRS doesn’t tax this money. This amount tends to rise each year, too (e.g., in 2021, you could funnel $19,500 per year into a 401K, in 2022, you can funnel $20,500 into your 401K). Then once you’re 50 or older, you can contribute at least an extra $6,500 to your 401(K).

Save Taxes by Contributing to an Individual Retirement Account (IRA)

Many people don’t realize that two major types of IRAs exist: traditional and Roth. Although you could deduct contributions to a traditional IRA, the amount will depend upon how much you and your spouse make and whether you’re covered by a retirement plan at work.

This is another one of those tax tips that you need to pay attention to each year because the amount changes. For instance, in 2021, you couldn’t deduct that you’re married and filing jointly, you’re covered by a retirement plan at work, and your modified adjusted gross income was over $125,000. However, in 2022 the number increased to $129,000.

Additionally, the IRS has established limits regarding how much money you can set aside in your IRA. In 2021 and 2022, you can only set aside up to $6,000 per year unless you’re age 50 or older, in which case you can set aside up to $7,000 per year.

Save Taxes by Maximizing Your Health Savings Account (HSA)

Here is another one of those tax tips that has you setting money aside, but this time it’s for your healthcare coverage. Unfortunately, it’ll only work if you have a high-deductible health care plan. If so, you can lighten your tax load by contributing to an HSA. This is a tax-exempt account in which you set money aside to use for paying for your medical expenses. The money is tax-deductible, and the withdrawals are tax-free as long as they’re used for qualified medical expenses.

In 2021 contributions of up to $3,600 were allowed for a self-only high-deductible health coverage plan. The limit has risen by $50 in 2022.

In 2021 contributions of up to $7,200 were allowed for a family high-deductible coverage plan. The limit has risen by $100 in 2022.

It’s important to note that anyone who’s 55 or older can put aside an additional $1,000.

The Bottom Line

There are many tax tips that you can use to save taxes. We’ve only mentioned a few of the tax tips that you can use to save on taxes here. At Weller Legal Group in Tampa, FL, we have other tips that we recommend as well. So, when you’re ready to file your taxes this year, make it a point to contact us.