It might seem a little premature to be worrying about next
year’s taxes now- several months before filing time- but honestly, there are a
lot of incentives for planning ahead, such as avoiding stress, late filing fees,
and the like. Plus, you can get a jumpstart on some tried and true money-saving
strategies, which we’ll outline here, that can help you to greatly reduce your
taxes.
Savings Strategy #1: Maximize 401(k) Contributions
If you want to reduce your taxes, then starting early in the
year is a must. Throughout the year, you can make efforts to reduce your
taxable income, which you can do super simply just by maximizing your 401(k)
contributions. You have until December 31st to rack up the tax
deductions, so it’s still not too late to start!
Even if you don’t have a 401(k), amping up the contributions
to just about any retirement savings plan will do the trick of lowering your
taxes. Any money you do contribute won’t be considered taxable, leading to a
lowered tax bill.
Just be aware of the current contribution limits ($18,000
for those under 50 and $24,000 for those 50 and up) so that you don’t go over
and defeat the purpose.
Savings Strategy #2: Sock Away Money in a 529 Plan
Another thing that can really help you is contributing to a
529 plan. Not only will this enable you to cut away at your tax bill, but it
will also give you money toward your child’s college education.
Your investments will grow without incurring any taxes, and
in some states, contributions may even make you eligible for certain credits
and deductions. Check with your financial advisor to see which options are
available to you.
Savings Strategy #3: Be Charitable
Having a giving spirit can lead to a lowered tax bill.
Whether you donate money, goods, or both to tax-deductible organizations, you
qualify for tax credits. Just make sure that the organization you are donating
to counts as a verified charitable organization- the IRS maintains a list of
such organizations so that you don’t end up giving and getting nothing in
return.
Savings Strategy #4: Open a Health Savings Account
Finally, you may want to consider opening a health savings
account (HSA). These accounts can be used to stash away money, and you can even
deduct that money tax-free- as long as it’s for healthcare costs.
There are limits to how much can be put into these accounts
($3,350 for most individuals and $6,650 for families). As long as you follow
the rules, your contributions will not be taxed, and if you don’t use the funds
in a given year, they’ll simply roll over to the next one.
As you can see, there are lots of ways to pay less in taxes in the coming year, but you’re best off getting a head start now!