Tax season is a dreaded time of year for millions of people in the United States and with good reason. Tax season causes a significant increase in stress since filing is frustrating, and you may owe money to the IRS. Handing more of your hard-earned cash to the government isn’t ideal, but there are ways to hold onto more of what you’ve made over the past year.
Smart money tactics are an excellent way to stay ahead of the game and make your situation and finances work in your favor when filing personal taxes. Researching your options to save money when paying taxes will help you grow your wealth in the long haul.
Luckily, you’re in the perfect place to learn about the best tips to use when trying to save more money while paying your taxes. Continue reading to make your money work for you today!
1. Alter Your W-4
One of the best ways to ensure you have more money in your pocket after filing taxes is by altering your W-4. Your employer can assist with this process and help you withhold more of your income to decrease the odds of a nasty surprise come April. The more money you withhold, the less you’ll owe when paying taxes.
You can also take the opposite approach if you’ve received a significant refund from the IRS after filing your taxes. Altering your W-4 will help you keep more cash and enjoy a stress-free tax season.
2. Use Your 401(k)
Your 401(k) is another powerful resource when putting smart money tactics to work for your finances. You can invest up to $22,500 annually into your 401(k) without paying taxes on it.
Your employer sponsors most retirement accounts, though it’s possible to set up a private 401(k) to meet your retirement needs. You can benefit further with your finances when your employer matches your 401(k) contributions. You’ll receive free money while avoiding paying taxes on your income.
3. Save for College
Saving money for college can also help you lower your tax burden if you’re worried about finances during tax season. When filing personal taxes, set money aside for your children’s tuition to gain more deductibles. You can combine those savings with the money you’ll save filing separately or with your spouse.
Use a 529 Plan to contribute to covering your children’s tuition when they graduate from high school and choose to attend college. The account is state-run, and you can save money on your personal taxes when filing taxes with your state.
4. Track Medical Expenses
Keeping a file of all your medical expenses from the past year is extra work, but it’s worth the money you’ll save on deductions when using clever money tactics to file your taxes. You can deduct medical expenses that make up 7.5 percent or more of your gross annual income.
If you made $80,000 during the previous year, you can deduct any money you spent on medical and hospital bills above the initial $6,000. The money you paid beyond that figure gets deducted from what you owe on your taxes.
5. Make Donations
Donations are a significant tool for wealthy individuals in the United States because they make helping others simple while allowing the donating individual to save money when filing and paying taxes. Any contributions to a charity can be deducted from your taxable income for the following year.
Your donations to these charities don’t need to be in cash to qualify for the tax deductions. You can account for donated clothing, food, sporting goods, and furniture. If you have a receipt or proof the items went to a legitimate charity, you can save money on your taxes.
The IRS allows you to deduct between 20 and 60 percent of your adjusted income when donating money and assets to charity. You’ll need to itemize to take advantage of this benefit, but it’s worth the money you’ll save compared to using the standard deduction option.
6. Sell Stocks
Another way you can learn how to save money when filing your taxes is by selling the assets that are bringing down your investment portfolio. Knowing you’ll get a hefty tax deduction makes letting go of underperforming stocks and investments feel better.
You’re allowed to deduct losses you incurred on stock investments. It’s a fantastic way to offset your capital gains tax on well-performing investments. You can enjoy a limit of up to $3,000 when offsetting capital gains as a single filer.
7. Fund Your FSA
Your FSA is another haven where you can funnel money to avoid paying more when tax season arrives. The IRS provides a path to invest money in your healthcare plan, which comes directly from your paycheck.
Consider using a flexible paying account if your employer provides access to one through your insurance coverage. The limit for 2023 taxes was $3,050, which is considerable when learning how to save money with taxes.
You’ll need to use the money during the calendar year to cover your dental and medical expenses from checkups and medical procedures. You can also use it for household items like bandages, acupuncture, and prescriptions.
8. Time Filing Right
Filing your taxes too late can result in hefty penalties from the IRS. It’s vital to time your taxes well to save money and avoid scrutiny about your finances.
You can also time your purchases to enjoy the maximum benefits from the investment. Determine if you’d prefer to pay taxes on a future expense now or in the coming year. You could gain extra interest from your mortgage payment to help you save more money when filing your taxes in April.
Apply These Smart Money Tactics Today
Using smart money tactics is critical when making your dollar go further, and it starts with knowing what you can do to learn how to save money when filing your taxes. Time your purchases well to enjoy tax benefits, and consider donating to charity for tax deductions. You can also alter your W-4 and use your 401(k) to save more on your taxes.
Tax season is an overwhelming experience. Prepare yourself and manage your finances with more guidance from our Finance content today!
