4 Ways to Save on Taxes
Updated: Apr 1, 2022
Wondering how you can save money on your taxes this year? You’re not alone. Every year, people scramble to find ways to reduce their tax bills. But don’t worry – we’ve got you covered.
The Trusted Referral Network is here to share some tips on how to save money on taxes. So read on for information on how to make the most of your tax return!
Health Savings Account (HSA)
The health savings account is a great way to set aside money tax-free for possible medical situations you can’t see coming. If it doesn’t end up being needed, then your HSA also has the potential of being used as retirement savings.
The contribution limits for the tax year 2021 rose to $3,600 if you have individual coverage and an extra $1k available with age 55 or older. So that means, for individual HSA’s you can contribute up to $3,600 annually, and for family HSA’s you can contribute up to $7,200.
You don’t want to just wait until tax time, so make sure you claim your deductions now! There’s plenty of room in the HSA account for every last dime if it helps out this year. The best part? You get all these great benefits without having any expenses itemized on an income statement or Schedule A form – which means more money saved with less hassle later down the road when filing away those taxes come April 15th.
The great thing about an HSA is that no matter how much your account value increases over time, you won’t be subject to any taxes on the earnings. You can sit back and watch the money grow without having to worry about a tax penalty since it’s not accessed until you need this healthcare savings account. An HSA grows tax-free, as long as the account is only used towards medical expenses.
Health savings accounts are a useful vehicle for setting aside money to be used in case of an emergency. Even if you go your whole career without the need of dipping into this tax-free account, it can still become accessible when needed most – during retirement age where there is a more likely chance at needing medical care than ever before!
Individual Retirement Accounts (IRA)s
The benefits of IRAs are generous, but there’s a catch. You must decide what type will work best for your needs – traditional or Roth? Anyone with earned income can contribute to their choice between these two accounts- it just depends on timing whether you’ll get the full tax break when filing!
The rules for IRAs are a little different depending on whether you have traditional or Roth accounts. With a traditional IRA, payments go towards taxes now but when it comes time to withdraw funds from your account all previous contributions plus earnings will be fully tax-free.
With a Roth IRA, there’s no immediate taxation as soon as money goes into this type of investment vehicle – instead, interest rates increase over time so that users can keep growing their balances without paying much attention to what might happen after retirement!
With traditional IRAs, you have to start taking required minimum distributions (RMDs) at age 72 even if it’s not necessary for the funds in your account. The IRS offers worksheets designed specifically with this calculation based on an individual’s current age and how large of a portion they want from their overall investment portfolio–which can make planning easier!
You have to be careful when you withdraw money from a traditional IRA. You’ll pay taxes and an early withdrawal penalty of 10%.
Contribute to Your 401K
401(k)s are one of the most popular ways to reduce your tax bill. The IRS doesn’t tax what you divert directly from a paycheck into a retirement account, so this is an extremely effective way for individuals who have lower salaries or wages with more traditional jobs where they might be able to take advantage of these accounts before-the-fact as well!
The maximum amount you can funnel into your 401(k) account from work is $19,500 in 2021 and an extra $6,000 for people who are 50 or older.
Save for College
Setting aside money for your children’s tuition can be a great way to ensure they’re able to afford college. You might consider making contributions towards their future education by opening up an account in one of the many state-sponsored 529 plans available today!
Not only do these accounts offer tax sheltering benefits on federal taxes, but some states also provide additional incentives such as matching grants or income limits which will help make sure that any funds put into this type go further than just covering tuition costs.
A Resource You Can Trust
It can be hard to know how to save for your future, especially when there are so many options available. You may have heard of others using health savings accounts, IRA’s, 401k’s, or saving for your children’s college to receive a tax break but you may not know how they work or which one is right for you.
At the end of the day, Trusted Referral Network is here to help. Whether that’s finding the best healthcare plan that suits your needs and budget, or ways to make your money go further. We provide unbiased advice on how to set yourself up for success now and in the future.