4 Ways To Reduce Taxes for Next Year

4 Ways To Reduce Taxes for Next Year.

The end of the year is quickly approaching and if you owe, you’re running out of time to find ways to reduce taxes for next year. Here are four of the easiest ways we know to quickly, and rather easily, cut your tax bill by the end of December.

Save Extra for Retirement.

Putting extra funds into a pre-tax retirement account such as a 401(k) or a non-Roth IRA is a great way to reduce your taxable income for the year. For example, if you have a taxable income of $65,000 and contribute $5,000, you’ll reduce your taxable income to $60,000. However, there are limits as to how much you can contribute to pre-tax retirement accounts.

Hold-off on Selling Investments.

Individuals pay a 15% long-term capital gains tax on the investments they hold for more than one year. However, if an investor sells their investment before the one year mark, the profits are classified as short-term gains and are taxed at the ordinary income tax rate of 25%-40%. Therefore, if you can hold off on selling an investment, without it losing value, you can save at tax time.

Look for Tax Credits (Not Tax Deductions).

A tax credit is much more valuable than a tax deduction because it shrinks your taxable income on a dollar-per-dollar basis. For example, if you receive a $2,000 tax credit for educational expenses you’re able to deduct the entire amount from your tax bill. On the other hand, if you are in the 25% tax bracket and write-off a $1,000 tax deduction, you’ll only save about $250 on your taxes. That’s a big difference.

Hire a professional.

The best way to reduce taxes for next year is to hire a tax professional. Although hiring someone to do your taxes may cost more than doing your taxes online, a good tax preparer pays for themselves. That’s because tax professionals keep up to date with the latest tax codes and can offer financial strategies that will save more money than the fee they charge.

If you need assistance developing a strategy to reduce taxes for next year, contact the tax professionals at USA Tax Prep today.

 

 

 

 

 

 

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