Tax Saving Secrets
Honestly, most people don't like paying their taxes, with some going the extra mile to avoid paying. However, there are various ways you can save money even when filing your tax returns. This way, you don't have to break the law to hold extra cash. Keep in mind that different people face different tax obligations; hence, what works for one person may not work for another. However, here are a few tax-saving secrets that can be applied across the board.
Medical expenses can cause a massive dent in your finances, especially when you have to pay for the medication your insurance doesn't cover. However, you can enjoy tax relief from the IRS through the medical expenses deduction offered when your medical expenses under your itemized deductibles are included. As of 2021, the IRS allows taxpayers to deduct their total qualified unreimbursed medical expenses if the figures are more than 7.5% of the adjusted gross income.
For example, if you have an adjusted gross income of $70,000 and you spend $8000 on your medical expenses, you qualify for a 7.5% deductible on your medical expenses. This is calculated by multiplying 7.5% by 70,000 to get a threshold that sums up to 5,250. The resulting medical expense deduction is $2750 ($8000 - $5250).
Flexible Spending Account Options
If you are working for a company that offers FSAs, it may be in your best interest to take advantage of these tax-saving medical expense accounts. FSAs allow you to make pre-tax contributions you can use to pay for medical expenses from your personal finances. As of 2021, the IRS allowed taxpayers to contribute up to $2750 to their flexible spending accounts. This way, they can reduce their taxable income by an equivalent amount.
You can as well use funds from your FSA to pay for health insurance deductibles and other medical expenses, including:
- •Medical equipment such as blood-testing kits, slings, and crutches.
- •Prescriptions and over-the-counter drugs.
- •Medical supplies such as bandages.
However, if you don't use the funds under these accounts by a given period, you automatically lose the funds.
Open a Roth Individual Retirement Account
At one point in time, you will have to retire. However, you don't need to think about tax charges when all you want is to rest and enjoy the fruits of your youth. Saving for retirement through an IRA is an excellent way to prepare for the future. Keep in mind there are two types of IRAs, Roth and Traditional. The difference between these two is related to taxes.
For a traditional IRA, you pay taxes for the fund when you retire and withdraw your money. On the other hand, with Roth IRA, the funds are taxed upfront, which means the funds will be tax-free when you withdraw them during retirement. Roth IRA is a great way to protect yourself from future taxes, especially if you are likely to be in a higher tax bracket at the time of retirement.
Appealing for Property Taxes
The real estate industry has been on an upward trajectory since the start of the year. This has led to a rise in property taxes based on the increased value of properties. This tax rise is felt mostly by people living in states that levy high property taxes. According to the Tax Cuts and Job Act, taxpayers are expected to pay a total tax deduction of no more than $10,000.
However, at times the tax assessor may increase the assessed value of your property. This action gives you a legal ground to appeal this assessment, especially if the value assigned to your property is higher than the going rates of your location. File an appeal with your tax assessor's office can help save you a decent figure on your property tax bill.
Paying taxes is part of every citizen's civic duty. However, there are smart ways you may be able to save money through tax deductibles. This way, you can enjoy your hard-earned money without breaking the law.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.