The year 2018 brought with it a considerable number of changes to the tax code. But before the year ends, you’ll want to make sure you’re doing everything you can to minimize the taxes you pay while still reporting everything correctly to the IRS.
Here’s how to pay less taxes overall while still meeting your tax obligations:
Whether you have a traditional IRA or a 401(k) retirement account, any contribution you make to it is exempt from taxes for the year that the contribution is made. For example, if you contribute $1,000 to your 401(k) or IRA, you won’t pay taxes on that contribution for the 2018 tax year.
If you can afford to max out your contributions for the year, you should definitely do so. Not only will the retired you thank you later, but you’ll also be protecting that much more of your money from being taxed!
Just like with retirement accounts, making contributions to your HSA (Health Savings Account) or FSA (Flexible Spending Account) will let you put aside money, tax-free, for qualifying medical expenses not covered by health insurance. With an HSA, the catch is, however, that you’ll likely need to purchase an insurance plan with a high deductible.
With FSAs, the rules vary depending on the type of account, so check with your employer to determine when you can make contributions. Oftentimes you can only make them during the open enrollment period.
Keep in mind that there’s also a change affecting overall tax law with regard to medical expenses. If you anticipate having a considerable medical expense that’s not goign to be reimbursed, and you have control over the timing in which it happens, you can deduct certain health-related expenses over 7.5% of your adjusted gross income in 2018. In 2019, the deduction goes back to its previous 10% limit.
Education is the gift that keeps on giving, and with a 529 education savings account, you can put money aside to give as a tax-free gift to a beneficiary, no matter how old or young they are.
These accounts can cover up to $10,000 of tuition per year for the person to be enrolled or attend at a private, public or religious elementary school or secondary school, but they ideally work best for college or university expenses, once the investment has had several years to grow.
Although these are just some of the many tax-free contributions and gifts you can make, they are by no meals a complete list. Ensure that no matter what you do, however, you report all income, including any money you may have received from a second or side job, to the IRS. Penalties for failing to do this can be considerable.
And although changes to the tax code were made this year in an attempt to simplify it, you’d likely not know it if you looked at it today. That’s why it’s always a good idea to consult with a certified tax professional should you have any questions or concerns.
Most tax laws state that contributions have to be finalized by December 31st, so act now before the new year approaches!