3 Ways to Reduce Your Tax Burden

Retirement

3 Ways to Reduce Your Tax Burden

Posted by Infinite Wealth Advisors, LLC
5 years ago | March 2, 2015

Tax Forms and Broken PencilIf you’re getting ready to write a big check to the IRS, you might be thinking “I need to make sure this doesn’t happen again next year”. Of course, taxes are just a part of life… But there are a few ways you can potentially lower your tax burden.

Defer income, when you can. Your employer estimates your payroll tax deductions based upon your annual expected income. Toward the end of the year you might receive a bonus, which might push you into a higher tax bracket and cause you to owe additional money to the IRS in the spring. If your employer usually gives a bonus at the end of the year, ask if perhaps they would delay the check until the beginning of January instead. That way, taxes on the money won’t be due until the next spring, and you have the chance to make a slight adjustment to your payroll tax withholding to make up the difference.

Self-employed individuals can use a variation of this strategy: Wait until January to send out the last few invoices of the year.

Take advantage of the right deductions. In some years you might earn more than usual, so clustering certain deductions may be helpful if you plan it correctly. If you’re facing a slightly higher tax burden than usual, prepay your real estate taxes for next year or increase your charitable donations. Consult with your tax professional about tax-advantaged strategies to handle your medical expenses, or about other deductions for which you might be eligible. Guidance from a tax professional can help you find creative ways to utilize tax deductions.

Make the most of retirement savings opportunities. You can make tax-deferred retirement plan contributions, meaning the money you set aside for retirement lowers your taxable income by that same amount. So contribute the maximum amount allowable each year, including catch-up contributions after age 50. You can prepare for a healthier retirement while potentially paying less to the IRS at the same time.

Always consult with your tax professional before attempting to utilize these strategies. Talk to your financial advisor about retirement plan contributions.

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