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Tax Strategies that Leave No Regrets

Tax Strategies that Leave No Regrets

February 28, 2024

Tax season is here, and perhaps we might be having recriminations over financial decisions made in the past year that could have relieved our tax burden. So, while we are in the moment, let's consider some strategies you can begin to put in place before the next tax year is upon us.

There are several strategies you can consider to save on taxes when filing your federal tax return. Here are some tips:

Maximize your Charitable Contributions:  Contribute to causes or ministries you care about. Maintain good records of your giving and itemize deductions when tax time comes.

Contribute to Retirement Accounts: Contributions to retirement accounts like Traditional IRAs, 401(k)s, or Health Savings Accounts (HSAs) may be tax-deductible, reducing your taxable income.

Take Advantage of Tax Credits: Tax credits directly reduce your tax liability. Look for credits such as the Earned Income Tax Credit (EITC), Child Tax Credit, and Education Credits to lower your tax bill.

Itemize Deductions: If your itemized deductions exceed the standard deduction amount, consider itemizing deductions to reduce your taxable income further. Common itemized deductions include mortgage interest, property taxes, and charitable contributions.

Maximize Flexible Spending Accounts (FSAs): Contributions to FSAs for healthcare or dependent care expenses are typically made on a pre-tax basis, reducing your taxable income.

Utilize Tax-Efficient Investments: Invest in tax-advantaged accounts like Roth IRAs or municipal bonds, which offer tax-free growth or tax-exempt income.

Harvest Capital Gains and Losses: Strategically sell investments to realize capital losses, which can offset capital gains and up to $3,000 of other income. Be mindful of the wash-sale rule when selling securities at a loss.

Claim Business Expenses: If you're self-employed or have business-related expenses, ensure you claim all eligible deductions, such as business mileage, home office expenses, and professional fees.

Contribute to Education Savings Plans: Contributions to 529 college savings plans are often deductible at the state level and may qualify for a deduction on your federal tax return in some states.

Be Mindful of Timing: Consider the timing of income and expenses. For example, deferring income into the following tax year or accelerating deductible expenses into the current year can help manage your tax liability.

Stay Informed and Seek Professional Advice: Tax laws and regulations change frequently. Stay informed about available tax deductions, credits, and strategies. Consider consulting with a tax professional or financial advisor to optimize your tax-saving strategies and ensure compliance with tax laws.

Remember to keep accurate records of your income, expenses, and deductions to support your tax return claims. Additionally, always ensure compliance with IRS regulations and consult with a tax professional for personalized advice based on your individual financial situation.

Tax season does not have to catch you by surprise. With a little planning, you can stay organized with your record-keeping and might develop some strategies to make tax season an opportunity rather than a regret.

* This is for educational purposes only and not intended as investment, tax or legal advice.