7 Strategies to Cut Your Tax Bill


September 30, 2020

7 Strategies to Cut Your Tax Bill

September 30, 2020

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Here are 7 strategies you can use besides deductions and credits to cut your tax bill:

  1. Tweaking your W-4 to increase your withholding if you have a huge tax bill. Decrease your withholding if you received a huge refund.7 Strategies to Cut Your Tax Bill
  2. Putting Money directly from your paycheck into a 401(k). This prevents the IRS from taxing whatever amount goes into your 401(k).
  3. Putting Money in a traditional IRA or Roth IRA. In a traditional IRA your contributions may be tax deductible and your investments will grow tax-deferred over the years. In a Roth IRA, money is taxed prior to entering the account and will grow tax-free. Your withdrawals will not be taxed in retirement from a Roth IRA
  4. Open a 529 account that is operated by most states and some educational institutions which will help you save for college. You can deduct contributions to this from your state return, not federal.
  5. Fund Flexible Spending Account (FSA) for medical and dental expenses. The limit for 2020 is $2,750, however, you may lose what you don’t use, so take time to calculate your predicted expenses.
  6. Use Dependent Care Flexible Spending Accounts (DCFSA) because the IRS will exclude up to $5,000 of your pay that your employer diverts to a DCFSA. This can be used for child and elderly care.
  7. Maximize Health Savings Accounts (HSA) to tax-exempt your medical expenses.

 

Every strategy is dependent on a variety of different factors, so make sure you read the fine print!

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