The term “tax burden” is a reference to the responsibility placed on a person or group of people for paying a greater portion of the taxes. Tax burden doesn’t refer to just one type of tax, but to the total taxes paid by a country’s citizens. These taxes can be in the form of corporation tax, income tax, value-added tax, etc.
Across the United States, tax burdens have risen in response to economic changes caused by the pandemic and the accompanying challenges. Tax burdens vary by state, with residents in some states carrying a higher tax burden than others.
Tips for Decreasing Your Tax Burden
On an individual basis, it is possible to reduce your tax burden by following certain legal strategies. Since it’s natural to want to give less of your hard-earned money to Uncle Sam, here are a few things you can do to keep more of what you earn this year.
Turn Investment Losses Into Gains
When your investments cause you to lose money instead of earning it, it’s understandably frustrating. One potential way to turn some of your losses into gains is by selling off your bad investments and claiming them as a loss. Those losses may offset capital gains made on more profitable investments.
Contribute to a Flexible Spending Account
A flexible spending account may be a good way to decrease your tax burden if your employer offers this option. You can contribute to an FSA using pre-tax funds. The money in your FSA can pay for medical expenses that qualify.
Maximize Your Retirement Contributions
When you maximize contributions to your retirement accounts, you can decrease your tax burden. Even though you can’t immediately use the money in your retirement accounts, you are putting it away for a time when you will need it. In the meantime, it continues to grow. If you utilize a 401(k) there are additional tax benefits.
Open a Health Savings Account
A Health Savings Account (HSA) is somewhat similar to a flexible spending account, but it offers additional benefits, such as balance rollovers into the next year. Any money contributed to an HSA immediately reduces your taxable income, similar to how a 401(k) works. You can grow money tax-free in your HSA account, then use that money for any qualifying medical expense.
Take Advantage of 529 Savings Plan Deductions
Another good way to reduce your tax burden is to open a 529 savings plan for your kids. This type of savings account allows you to put money away for your child’s college expenses while simultaneously reducing your tax burden. Keep in mind that some states do not allow 529 savings plan deductions, so check with your state before you decide whether opening such an account will offer tax benefits.
Get More Legal Advice on Decreasing Your Tax Burden
It can be confusing to figure out how to reduce your tax burden, which is why it’s wise to get help from professionals. Here at AmeriEstate, we can give you advice on how to reduce your tax burden in strategic ways. From estate planning to tax deferral strategies, we can help you hang onto more of your hard-earned money. Contact us for a consultation.