Ways Minimize Tax Liability – Tax Accountant in Springfield Missouri

With the end of this year quickly approaching it may be time to start thinking ahead on taxes. Save money on your taxes this year through these tax liability strategies that minimize income and reduce your tax bracket.

Contribute to a 401(k) or IRA

Contributing to a 401(k) plan is of the easiest and most cost-effective ways of saving money for your retirement and reduce your current-year tax liability. Many employers offer these plans where you can choose to contribute part of your salary to a tax-deferred retirement account. Other employers, such as universities, offer a similar plan called a 403(b) is available. Check with your employer about the availability of such a plan and contribute as much as possible to defer income and accumulate retirement assets.

If you have income from wages or self-employment income, you can build tax-sheltered investments by contributing to a traditional IRA (pre-tax contributions) or a Roth IRA (after-tax contributions). You may also be able to contribute to a spousal IRA even when your spouse has little or no earned income.

Make a Charitable Contribution

Donating is a fulfilling option that allows you to support a cause you believe in and it provides a tax deduction that grows based on your peak marginal tax bracket. This means the higher your tax bracket, the fatter your charitable tax deduction. The wealthiest taxpayers who find themselves in the peak marginal tax bracket of 39.6% can receive a $0.396 deduction for every $1 they contribute to an eligible organization. Verify that the IRS recognizes the organization that you wish to contribute to and keep the proper documentation that comes with your donation.

Utilize Employer Benefit Plans

Medical and dental expenses are generally only deductibles to the extent they exceed 7.5 percent of your adjusted gross income (AGI) in 2018 (rising to 10% in 2019). For many individuals, particularly those with high income, this could eliminate the possibility for a deduction.

However, you can effectively get a deduction for these items if your employer offers a Flexible Spending Account or FSA (sometimes called a cafeteria plan). These plans permit you to redirect a portion of your salary to pay these types of expenses with pre-tax dollars. Another such arrangement is a Health Savings Account (HSA). If you have a health insurance plan with a high deductible, consider putting money into a Health Savings Account (HSA). All HSA contributions are tax-deductible, and the funds roll into next year. Best of all, as long as you use the money for eligible health expenses, you don’t have to pay tax on it next year either.

It is important to think ahead on minimizing your tax liability. Businesses should reference a tax preparer in Springfield Missouri and individuals with questions regarding taxes should contact us at Schultz, Wood & Rapp, your tax accountant in Springfield Missouri.