The tax code is about 75,000 pages long, so it’s not surprising
there are many overlooked money-saving deductions hidden within it. And with
the much higher standard deduction amounts, those who do not itemize think
there are no longer ways to reduce your taxes. Since mid-year is a good time
to review great tax reduction ideas, here are some to consider: 1. Charitable contributions if you don’t
itemize Even if you do not itemize deductions you can still take a
deduction of $300 for your charitable contributions ($600 if married). Just
ensure you get receipts to prove you made the donation. Too many make
donations, but lack proof. 2. Maximizing HSA contributions If you have qualified high deductible health insurance you can
reduce your taxable income by contributing to a Health Savings Account (HSA).
That way you not only reduce your taxable income, but you pay out-of-pocket
qualified medical, dental and vision care with pre-tax dollars! And remember
to contribute up to the annual limit ($3,650 for single or $7,300 for married
in 2022 PLUS and additional $1,000 if you are age 55 or older). 3. Student loan interest You can deduct up to $2,500 in interest paid on student loans
from your tax return. This is true even if someone else helps you pay your
loans. Parents who have co-signed student loans (creating legal obligation
for the debt) often forget that they are also now eligible for the deduction
on payments made by them. 4. Leveraging your itemized deductions While many taxpayers do not have enough deductions to itemize,
if you can bundle two or three years of deductions into one tax year you can
maximize your deductions in all tax years. Here’s an example: You budget and
make deductions to your favorite charities and church every year. Don’t
change that practice, but prior to the end of the year, prepay all of next
year’s donations prior to December 31 if it helps exceed the itemized
deduction threshold. The following year use the full standard deduction with
lower-to-no charitable donations. 5. Donating appreciated assets (stocks,
mutual funds and other investments) If you itemize deductions, instead of donating cash, consider
donating appreciated assets you have owned for more than one year. Your
charity gets the same financial value, but you not only get a great
charitable donation, you also avoid paying capital gains tax on the
investment. This could be a great idea if you feel stuck in a down market,
but don’t want the tax exposure by selling a long-held investment. 6. Over-reporting state refunds Remember if you use the standard deduction, your state refund
does not add to your taxable income and should not be added to income. Even
if you do itemize, your state refund may only apply if it provides a tax
break. So couple a large state tax refund with your itemized versus standard
deduction plan and save even more in taxes. 7. Taking full advantage of state tax
deductions Remember when you itemize, you can claim up to $10,000 in
total taxes as an itemized deduction. But even if you do not have much in the
way of state income taxes or property taxes, you can still deduct state sales
tax. Even better, if you have a small business, many states now allow you to
pay their tax at the entity level and avoid the $10,000 limit all together! 8. Leveraging retirement accounts to their
fullest There are numerous retirement tax plans that are great tools
to help reduce your taxable income. They include 401(k), 403(b) and SIMPLE
IRA plans offered through employers and numerous other versions of IRAs. The
key is each has an annual contribution limit, and if you don’t use that limit
for the year, it is gone. So review your options and try to take full
advantage of the tax benefits within each plan. As
with any part of the tax code, certain qualifications must be met and limits
apply. Please feel free to ask for help if you think any of these ideas apply
to you. |