It’s tax season, a time of year that fills many of us with dread. If you fear you haven’t done enough over the past year to reduce your tax burden, potentially leaving you stuck with a high bill, we’ve got some tips that can help you even this late in the game. We also cover common mistakes that can lead to an unwelcome surprise when the Internal Revenue Service (IRS) catches them.
Tips for Lowering Your Tax Bill
Most steps you can take to reduce how much you owe in taxes occur during the tax year. Effective tax planning is a year-round process. However, the federal government does provide tax-saving options that spill into the New Year.
Contribute to Retirement Accounts
If you need to lower your taxes during the filing season, making a tax-free retirement contribution is one of the best ways. You can’t deduct Roth IRA contributions, but you can deduct those you make to traditional IRA accounts.
Your own traditional IRA isn’t the only qualified retirement account. In some instances, you may be able to deduct contributions to your spouse’s IRA. If you are self-employed, you can also deduct contributions. However, you must establish your retirement account before the end of the tax year, except for simplified employee pensions and Keogh accounts.
The IRS allows you to deduct contributions you make right up until the filing deadline (April 18th in 2023). However, the government does establish limits on how much you can deduct, so make sure you know what they are before you funnel extra money into your retirement account.
Contribute to a Qualifying Health Savings Account
If you have a high deductible health plan, you can contribute to a health savings account to cover the cost of health care not covered under your insurance. You can deduct your contributions to these health savings accounts (HSA) until the tax-filing deadlines.
Leverage Trusts for Savings on Capital Gains
If you anticipate paying high taxes on capital gains, you may be able to take advantage of two trust types that lower capital gains taxes. AmeriEstate can help you establish a charitable remains trust, a vehicle for delayed charity distributions that can also provide an income stream and tax benefit. Reef Point’s Deferred Sales Trust allows you to defer capital gains taxes from the sale of high-value assets by placing the proceeds of the sale in a trust. You and the grantor determine when you receive payments and how much those are.
Tips for Mistakes To Avoid
When completing your taxes, some mistakes can lead to a surprise in your tax bill, including the potential for penalties. The following mistakes are common ones that you should avoid:
- Not reporting income from all income streams
- Making calculation errors
- Not taking the correct deduction amount
- Claiming a dependent who doesn’t qualify as one
- Getting in a hurry when completing your returns
Working with a tax accountant can help you avoid these potentially costly errors.
Talk to an AmeriEstate Partner
AmeriEstate partners understand the stresses of tax season, and we know how shocking it can be to find out you have a large tax bill. Contact us today to talk to one of our partners about how we can help you save on your taxes.
Sources:
https://www.irs.gov/retirement-plans/ira-deduction-limits