Tax season is in full swing and as a financial advisor, many of my conversations this time of year are focused on ways to reduce taxes for my clients. Determining which credits and deductions you are eligible to claim will help you in maximizing your tax savings.
Here are some specific ways you can maximize your deductions and credits this year.
1. Contribute to your 401(k) and/or Traditional IRA. One of the best things your can do for your finances is save for retirement. Not only will you be saving for your retirement, but you will also be able to deduct your contributions from your taxable income. The IRS sets a limit on the amount you can deduct each year: $19,500 for 401(k) contributions and $6,000 for traditional IRA contributions.
The Roth IRA is a great tool for saving for retirement as well, but because Roth IRA’s are funded with after tax dollars, they are not eligible to be used a tax deduction.
2. Contribute to an HSA Saving for medical expenses with an HSA is another opportunity to deduct a portion of your income. Health Savings Accounts are available to anyone who has health insurance coverage that includes high deductible amounts that meet federal guidelines. Contributions to your HSA are full deductible and distributions are tax-free if used for qualified medical expenses. You can deduct up to $3,600 for individuals and $7,200 for families.
3. Take advantage of tax credits. As mentioned already, tax credits will typically yield a bigger return than tax deductions so it is important to know which credits you may be eligible to claim. Below are some of the more popular tax credits.
4. Hire a CPA. The United States tax code is an extremely complex subject. While it is certainly possible to do your taxes on your own with online tools like TurboTax or HR Block, I would encourage most people to reach out to a CPA to do their taxes. A competent CPA will not just file your taxes, but help you understand which deductions and credits can best maximize your tax return this tax season.
Brad Lupkes, CFP®