3 Ways to Reduce Taxable Income
When tax time comes, you’ll owe the least amount and get the biggest return if you properly reduce your taxable income. The less income your tax return shows you make, the less you must pay your state and federal government. Luckily, there are some easy, effective, and entirely legal tax preparation strategies to help you achieve this, including the following.
How to Lower Your Taxable Income Before Next Year’s Tax Preparation
1. Save for Retirement
The money you contribute to a traditional IRA is provided before it's taxed. This in turn reduces your taxable income, since everything you save toward retirement will be deducted. In the tax year 2020, you can contribute up to $6,000, or your taxable compensation for the year, whichever is smaller. Those 50 years of age and older can contribute up to $7,000 per year.
2. Create an FSA
A flexible spending account (FSA) allows you to put away money pre-tax for certain spending needs, such as medical care. Your employer can deduct that pre-determined amount from your paycheck, and may make an additional contribution if that's a benefit they offer. These accounts are limited to $2,650 per year, per employer. If you use this method, keep in mind that you must usually use the money within the plan year or lose it.
3. Keep Track of Business Deductions
Your accountant will need proof of your business-related deductions when tax preparation time comes. If you haven't already discussed a plan with them to keep track throughout the year, schedule an appointment to do that now. You'll need to track purchases and keep receipts, so you can make a deduction at the end of the year for these costs, whether they're for furnishing your home office or driving for work-related purposes.
The experienced professionals at ZP Tax, Inc. specialize in tax preparation, so they know how to reduce your taxable income as much as possible. Their help is available for individuals and businesses throughout the Silver Spring, MD, area. They’ll answer all of your questions, help you find every deduction possible, and avoid any penalties. Get started online or by calling (301) 587-4829 .