Every year Americans try to find ways of reducing their federal taxes, but the result is always the same. As tax season approaches, there is little that can be done to reduce your taxes but looking forward there’s plenty that can be done for next year. Some of the most basic things that can be done are the things we consider when it’s time to file, but by then it’s too late.
Before you get into the next year, stop to consider what you can do to reduce what you pay in. Some of the following you may already do now, but you may not know they can save you thousands. Tax credits can reduce your taxes by hundreds, or even thousands, and it all starts with knowing before the year’s up.
The following details the Top 10 Ways to Reduce Your Federal Taxes in 2019, 2020 and beyond.
10. Combine a Vacation with a Business Trip
Did you know that expenses incurred during any business trip will net you a tax break? These expenses are fully deductible, and if you can manage combining a vacation with your next business trip many of your expenses can be free. Some of your biggest expenses including airfare, car rental, and part of your hotel bill may be deducted if their unreimbursed expenses from your employer.
9. Deduct Your Home Office Expenses
You may be one of the millions of people who work out of your home. If you are, did you know you can deduct your home office expenses? Even if you work out of your home part-time, many purchases may be deducted including your computer, printer, and even space such as a bedroom which is used as your home office. You’ll have to fill out a 1040 Section 4 to see if you qualify, but the form will guide you step by step.
8. Deductions for Those Self-Employed
Those who are self-employed can deduct many of their work-related expenses. Some of these expenses include vehicle mileage, cost to ship products, home internet, cell phone bills, website fees, business travel, home office supplies and much more. These expenses really add up and keeping track of them throughout the year will make noting your expenses much easier.
7. If Self-Employed, Pay 100% Of Your SS Tax
If your self-employed, if you pay 100% of your social security tax you are entitled to deduct 50% of the taxes withheld. 100% of your SS tax equals to 15.3% and the best thing is you don’t even have to itemize in order get it.
6. Deduct Unreimbursed Vehicle Expenses
Most people don’t know they can deduct unreimbursed vehicle expenses such as travel from one office to another, gas and mileage. This is one of the most overlooked deductions and one that can easily save you hundreds in deductions each year. To get this deduction, your employer must not be reimbursing you already.
5. Go to College
Uncle Sam wants people to go to college and to help offset the cost of tuition, books and travel, you can take full advantage of the American Opportunity Tax Credit. Unlike deductions, this credit allows you to deduct 100% of the first $2000 and another 25% of an additional $2000 for a max total of $2500. The tax credit comes right off your taxes owed if you meet certain requirements like taking classes to improve your skills within your profession.
4. Donate to Charity
There are numerous charitable deductions which will give you a tax break. Some of the most prominent are donating to the Salvation Army or the United Way and doesn’t always have to be in the form of money. Feel free to donate food, clothes, cash and even the money you put in the collection plate at church as it’s all deductible.
3. Itemize Job Hunting Costs
Even if you didn’t find a job, you can itemize your costs relating to job hunting. While this won’t save you thousands, it will allow you to deduct all costs associated with looking for a job related to your current profession such as travel, mileage, gas, and even a nice suit. You will have to itemize and tab this as a miscellaneous expense and the amount you itemize must meet a 2% threshold.
2. Contribute to an HSA Account
An HSA or Health Savings Account is like a savings account for health-related purchases. Those who have high-deductible insurance should consider an HAS account as it allows you to contribute tax free money and roll it over year after year. Again, the money contributed is tax free and allows you to save up for the future on what will be one of your biggest life expenses.
1. Contribute to a Retirement Account
Opening and contributing to a retirement account is something that is something everyone should consider. It not only allows you to plan for your future but allows you to contribute money into your own account completely tax free. Money contributed is deducted from your taxable income and will grow year over year until retirement.