This time of year, with all the holiday festivities going on it is easy to see why your taxes might not be top of mind, but a few easy solutions can help you potential save thousands when you file your taxes next year. Make sure all your deductions will add up to more than the standard deduction and you itemize your tax return, otherwise you will not see the benefit of any of the suggestions below. For 2019 the standard deduction is $12200 for individuals and $24400 if you are married and file jointly. Here are a few ways to easily and, in some cases, dramatically reduce your tax liability.
Sell a loosing investment to offset other capital gains, or you can reduce your taxable income by as much as $3000. This is extremely useful if you are right up against the next tax threshold and want to avoid moving up into a higher tax bracket.
Max out an IRA or 401k. You can contribute to a tax deferred retirement plan to reduce the amount of taxes you own in the year of contribution. Keep in mind that depending on what retirement product you are in this may just be a deferral but can certainly reduce the tax you owe now if you will think you will be in a lower tax bracket in retirement. You can contribute up to $6000 in an IRA ($7000 if you are over 50) and $19000 to your 401k ($25000 if over 50).
Contribute to an HSA account. This is a great way to offset tax liability especially if you have kids. Individuals can contribute up to $3500 and families up to $7000. The funds can be spent on healthcare and other related items such as deductibles and prescriptions with now penalties or increase to your income. The funds are usually also able to be invested typically when the value is above $1000.
If you’re a homeowner or better yet you own investment property make sure you are taking advantage of every possible deduction and credit you are entitled to, especially depreciating the rental property. Do you work from home or have a home office? The home office is a great tool to use to deduct tax liability because you will get a deduction based on the square footage of the home but also things like internet, heating and cooling repairs and maintenance may also be able to be deducted as an expanse to reduce your tax liability. This is the perfect time to make improvements to your rental or home office and take the tax deduction.
Lastly a very common and easy way to reduce you tax liability is to make a charitable contribution. You can take a tax deduction for donating cash or items of value. It is important to document your donations and not exaggerate the values because without that documentation now one will believe that a bag of sweaters and some shoes are worth $5000, or that the old car that was towed away is really worth $10000.
As with anything you do regarding your taxes or financial wellbeing, consult with an expert and make sure that whatever plan you put in place that it is the right plan for you.
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