Smart ways to cut your tax bill

Tax time is not anyone’s favorite time of the year. Not only is there a lot of paperwork and math, but there’s also a possibility of a financial headache. While taxes are inevitable, and we can’t save you from paperwork, there are ways to ensure your peace of mind and avoid worrying. Not paying taxes is not an option, but fortunately, there are many legal ways to reduce your taxes and save a lot of money. You can do this through tax credits, deductions, and investment strategies. All you’ll need is a bit of know-how and patience. Of course, some options will be available only to small business owners or self-employed, but many are available to everyone. So, before you file your tax return, check these smart ways to cut your tax bill this year!

Opening a health savings account is one of the smart ways to cut your tax bill

If you already have a high-deductible medical plan, you can contribute to your health savings and reduce your tax bill. If you don’t, opening such an account can be very beneficial for multiple reasons. First, if you spend it on medical expenses, that money will never be taxed. Also, contributions to this account reduce your tax immediately and grow tax-deferred. You can always withdraw them tax-free for your medical expenses.

Does your employer offer flexible spending accounts?

If your workplace provides flexible spending accounts (FSA), you can still pay for medical expenses tax-free. FSAs usually use payroll deductions which you can then use to pay for various medical costs -from medications to insurance copays.

Contributing to your retirement account enables you to cut your tax bill

Contributions to your retirement account help you reduce your taxable income and plan for a brighter future. Most budgeting strategies include setting money aside for your retirement. It’s a sound strategy with many benefits.

Whether you contribute to your 401(k) or IRA account, it will be deducted from your taxable income, reducing the amount you need to pay. Plus, this fund continues to grow tax-free until your retirement.

Small business tax papers.
There are many ways to cut your tax bill when you’re self-employed.

Self-employed can claim plenty of business deductions

Why wouldn’t you make the most of your side hustle? You’re already doing the work, but did you know it makes you eligible for some tax deductions? Whether your side job is half-time or full-time, here are some business tax deductions you can expect:

  • business-related vehicle mileage and travel expenses
  • advertising
  • website fees
  • shipping
  • part of home internet charges
  • office supplies
  • any other costs incurred by running your business.

If you can, take advantage of these options.

Home office deduction is an option, too

Also, let’s not forget the home office. You can count on some tax deductions if you have a room in your home exclusively for running your business. Even if it’s only a spare bedroom, you can deduct a part of your rent and utility fees if you use it regularly for your side business.

Consult the tax experts to discover smart ways to cut your tax bill

Of course, figuring out what you can deduct, how much, and under what conditions can be overwhelming. If you’re struggling with understanding finer points, consulting professionals is always a good idea. They’ll ensure no opportunity is missed and you save as much as possible on your taxes.

However, it’s vital to choose someone trustworthy. So, always browse reviews when hiring qualified tax professionals, as you will find someone reliable. Compare several tax relief companies and choose the one that suits you best.

An expert wprking on some documents to be able to provide you with some smart ways to cut your tax bill.
Experts will ensure you don’t miss anything.

Higher education credit is another way to cut your tax bill

You can claim this credit for the first four years of college if you want to continue your higher education. If your credit exceeds the taxes you owe, you can get a considerable sum.

If you’re already working, there are other options. For example, you choose a lifelong learning credit and improve your job skills. This option also offers tax deductions that help you pay for training or college classes.

Opt for a 529 plan for your children

Even if you don’t care to continue your education, you can reduce your taxes by investing in your kids’ education. Open a 529 plan for college savings for your children. You can withdraw this money tax-free to use it for educational expenses. And if your kids choose not to go to college, there are various things you can do with this money – from using it for student loans to transferring it elsewhere.

Check if you qualify for an earned income tax break

You can qualify for this tax break if your income falls into the low to moderate category. It aims to help people with such an income reduce their taxes and increase their refunds. How much you can deduct depends on your family situation (whether you have children, dependents, etc.).

A couple discussing their earned income tax.
Check whether you qualify for an earned income tax break.

Updating your home can help you save on taxes

Learning how to do your taxes is one of the basic money management skills. But, with so many different rules and options, it can be pretty easy to overlook an opportunity to cut your tax bill. One such chance is to make energy-efficient updates to your home.

That includes energy-efficient windows and doors, heat pumps, insulation, and similar improvements. Separate tax deductions are available for using solar panels, wind energy, etc. This credit enables you to protect the environment, reduce your utility fees, and save on your taxes.

Charitable donations are a wholesome and smart way to reduce your tax bill

Another good idea is to make charitable donations. Such donations are tax-deductible, whether you make them through payroll deductions, checks, cash, or goods. A donor-advised fund is another option. You’ll get a tax deduction for the year you donated, and then you can send those donations to charities in the following years. That is an excellent way to provide help where it’s needed while, at the same time, there are some benefits for you, too.

The bottom line

Dealing with taxes is challenging and unpleasant for most people. But knowing what you qualify for can help you cut your tax bill and do so with ease. So, explore our tips and learn how to reduce taxes and save money.

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