Here are four easy things you can do right now to reduce your federal tax bill in the US. The idea here is to pay as little as you can in taxes, and we do this by reducing our taxable income. The way federal taxes work, you take your annual salary, then subtract from it …and arrive at your Adjusted Gross Income. Naturally we want to subtract as much as we can to make that AGI as low as possible. Subtractions are called deductions. That brings us to the 4 ways to save money on your federal taxes.
The 4 deductions are
- Put more money into your 401(k) if you have one. The money you put into your pension plan at work will not be taxed. For example, if you put $10,000 into your 401(k) then your AGI will be that much lower. The added benefit is that some employers will match what you contribute up to a certain amount. Nice!
- If you volunteer, keep track of transportation. That’s because you can deduct the mileage at $0.14 per mile, parking, tolls, and other ways you may have gotten to the volunteering work.
- If you give to charity, keep records. If you donate clothes, furniture, or anything else make sure it’s to a qualified charity. That way, you can deduct the amount you give off your taxes, thus reducing your Adjusted Gross Income.
- Plan your medical and dependent care. If you have a Flexible Spending Account (FSA) then make sure you use it. Contribute to it through your employer…money is taken out pre-tax so you are reducing your AGI even before it hits your Federal Tax Return.
- Set one up, put the right amount into it, and make sure you spend it by the end of the year.
Christina Davis CPA at Large