Nobody wants to hear that on top of everything on their to-do list, they have a tax bill to also pay off. We at Uniamerica Insurance not only also do your taxes but we have a few tips to offer. Read on to find out how you can cut your tax bill this year.
- If you got a huge tax bill this year and don’t want another surprise next year, raise your withholding so you owe less next April.
- If you got a huge refund, do the opposite and reduce your withholding — otherwise, you could be needlessly living on less of your paycheck all year.
- You can change your W-4 any time.
- For 2019, you can funnel up to $19,000 per year into an account. For 2020, the limit rises to $19,500.
- If you’re 50 or older, you can contribute an extra $6,000 in 2019. In 2020, the catch-up contribution rises to $6,500.
3. Contribute to an IRA
There are two major types of individual retirement accounts: Roth IRAs and traditional IRAs.
You may be able to deduct contributions to a traditional IRA, though how much you can deduct depends on whether you or your spouse is covered by a retirement plan at work and how much you make.
- For the 2019 tax year, you may not be able to deduct your contributions if you’re covered by a retirement plan at work, you’re married and filing jointly, and your modified adjusted gross income was $123,000 or more. In 2020, that number rises to $124,000.
There are limits to how much you can put in an IRA, too:
- For 2019 and 2020, the limits are $6,000 per year, or $7,000 for people 50 or older.
- You have until the April tax deadline to fund your IRA for the previous tax year, which gives you extra time to take advantage of this strategy.
4. Save for college
Setting aside money for your childrens’ tuition can shave a few bucks off of your tax bill, too. A popular option is to make contributions to a 529 plan, a savings account operated by a state or educational institution. You can’t deduct your contributions on your federal income taxes, but you might be able to on your state return if you’re putting money in your state’s 529 plan.
- In 2019, the limit is $2,700. In 2020, the limit is $2,750.
- You’ll have to use the money during the calendar year for medical and dental expenses, but you might also be able to use it for related everyday items such as bandages, pregnancy test kits, breast pumps and acupuncture for yourself and your qualified dependents.
- Some employers might let you carry up to $500 over to the next year.
- The IRS will exclude up to $5,000 of your pay that you have your employer divert to a Dependent Care FSA account, which means you’ll avoid paying taxes on that money. That can be a huge win for parents of kids under 13, because before- and after-school care, day care, preschool and day camps usually are allowed uses.
- Elder care may be included, too.
- What’s covered can vary among employers, so check out your plan’s documents.
Let Uniamericainc.com help you with your taxes or insurance today!