If you’re like many people in the United States, you’re probably overwhelmed by taxes. The Tax Code is constantly adding new provisions and losing other ones, so there’s always a lot to keep up with. Fortunately, there are some tax tips that can help alleviate the pain of tax season.
Here are some ways to legally lower your tax bill for this year.
Make Retirement Account Contributions
Contributing to retirement accounts can help you save a lot of money on your taxes in multiple ways. First, contributions to traditional 401(k) and IRA accounts are deducted from your taxable income. Then, your money grows tax-free until retirement. And if you choose a Roth account, you don’t get an upfront tax deduction, but the money will grow tax-free and can be withdrawn during retirement without you ever having to pay any income taxes on it again.
Start a Health Savings Account
If you have a high-deductible health plan, you may want to consider contributing to a health savings account (HSA). If you make withdrawals from an HSA to pay for routine medical expenses or qualified long-term care expenses, you won’t have to pay income tax on any withdrawals. Any balance left in the HSA at the end of the year can be carried over into the following year, like an IRA.
Ask About Flexible Spending Accounts
If you’re paying out-of-pocket for medical expenses, your employer might offer tax-free accounts known as flexible spending accounts. These allow you to pay for expenses ranging from a trip to the doctor to dental cleaning with pre-tax dollars.
Start a Side Hustle
If you earn income as a freelancer or contract worker, you may be able to deduct many business-related expenses from your taxes. This means that the money spent on your freelance projects or time spent as a ride-share driver could end up canceling out any taxes you owe for those earnings.
Claim Home Office Deductions
If you use a portion of your home exclusively for business purposes, you may be eligible to deduct business expenses, such as rent or utility fees, and claim tax benefits. To be eligible for the deduction, the space must be used regularly and exclusively for business.
Rent Your House for Business Meetings
Many business owners use their home office to conduct business and then rent out a room in their house for occasional meetings with clients. They can reduce the amount of taxes they must pay on that income by doing this.
