Simple ways to lower your tax bill
We are a few weeks away from tax day, Monday, April 18, 2022.
Obtaining the maximum refund possible is the goal of most, if not all, taxpayers. Are you doing everything to get your maximum refund?
Last year, the IRS received over 16 million tax returns. The average reimbursement was approximately $2,306. Getting a refund like that is not to be overlooked; however, that doesn’t mean we can’t do better.
Most of us claim no dependents on our W-9s, maybe pay extra taxes by paycheck, and call it a day. There are plenty of ways to reduce your tax burden and get the maximum refund without breaking the law.
Here are some suggestions from financial experts:
Maximize Charitable Giving
Myra Alport, a certified financial advisor with over 30 years of experience in the industry, has some suggestions for giving to charities.
“The 2021 special tax relief that allowed cash donations of up to $300 for single taxpayers or up to $600 for married couples has not been extended in 2022. There are several ways for taxpayers to get more for their money with charitable donations. in 2022 as long as they are for “qualified” public charities as judged by the IRS.
Myra explains that taxpayers aged 70.5 or older can make a qualified charitable distribution (QCD) from an Individual Retirement Account (IRA) to a qualifying charity. She states that “this tax-free transfer of cash or stock is permitted as long as the distribution (maximum $100,000 per year) is paid directly from the IRA by the custodian.”
This type of tax relief can be beneficial for taxpayers forced to take their required minimum distributions (RMDs) from age 72.
Another charitable option, for taxpayers of any age, is to donate appreciated stocks you’ve held for a year or more directly to charity from a taxable brokerage account. “Taxpayers will receive a charitable tax deduction for the full fair market value of the stock at the time the donation was made.”
When using this method, up to 30% of your adjusted gross income is the limit for donations.
Did you know that you can also offer shares to a loved one or to one of your children? It’s true. You can gift up to $15,000 worth of stock or $30,000 for a married couple to a relative of your choice.
The tax advantages here are twofold. First, the donor can avoid taxes on potential capital gains from the sale of the donated shares. As a rule, the recipient of the stock is a retired parent or a child who is not yet in the labor market. The reason for this is to give the stock to someone in a lower tax bracket than yourself. Once the recipient has sold the stock, they will keep more of that money than you could possibly have.
Accelerate retirement savings
Deborah Meyer, CPA financial planner, founder of WorthyNest, and author of Redefining Family Wealth, has tax cut ideas that revolve around investing.
“Contributing to a retirement account is a great way to save for the future while reducing your tax bill. If you weren’t eligible for an employer-sponsored retirement plan in 2021 but were earning a salary, you can make a traditional IRA contribution by the tax deadline and have it count as a deduction. tax for 2021.
The maximum annual amount you can contribute to traditional and Roth IRA accounts combined is $6,000. If you are 50 or older on 12/31/2021, this amount is increased to $7,000. If your taxable earnings are less than this amount, your combined IRA contribution is limited to your total compensation.
Deborah’s other suggestion is longer term. “Roth IRA contributions, while not currently tax deductible, can be an excellent long-term tax strategy because you are not required to receive Roth IRA distributions during your lifetime. Qualifying earnings and withdrawals are tax-free.
Bank Health Savings
Mercer Street Company founder Ryan Firth has another valuable way to lower your tax bill. “If enrolled in a high-deductible health plan on December 1 of last year, the plan participant can set up a Health Savings Account (HSA) and contribute $3,600 around 2021 (more additional catch-up contribution of $1,000 if age 55 or older).
In this case, the contribution reduces taxable income and, unlike an IRA, there are no income restrictions.
Ryan also has a method for those of us who are self-employed. A Simplified IRA for Employee Retirement (SEP) is also a way to get tax deferral, but most employers don’t offer one, however, if you’re self-employed, you can set one up. . You have until the filing date of your tax return to make a contribution to a SEP-IRA for the previous year.
When it comes to tax timing, we can always do more to reduce our tax burden. Donating to charities, investing in retirement accounts or opening a health savings account are just some of the options we have. However, before you do anything with your taxes, take the time to speak with an expert to ensure you get your maximum refund.
This article was produced by HaveYourDollarsMakeSense and syndicated by Wealth of Geeks.