How to Reduce Your Tax Burden

It’s the end of January and the start of the tax filing season. When you look at your tax return this year you may wonder, “How can I reduce my income taxes?” Let’s go over a brief conceptual overview. 

This may sound simple, but there are three directions to pursue: reducing your adjusted gross income, increasing your deductions and maximizing tax credits to arrive at a lower taxable income and/or tax due. 

Always make use of tax deferred retirement plans – 401(k), non-profit 403(b), SEP, Simple IRA, traditional IRA, etc. Contributions to these plans will reduce your taxable income and yield less tax due in the current year. Contributing to a ROTH IRS will not reduce your income taxes currently, but you will not have to pay income tax on those ROTH distributions when you retire. You should also make use of employer plans that help you cover health care and dependent care costs on a pre-tax basis for the same reason.

In addition to utilizing tax-deferred retirement plans and pre-tax employer benefits, it’s crucial to explore smart investment strategies that can further reduce your income taxes. By working with a reputable wealth management service like vigilantwm.com, you can gain valuable insights and guidance on tax-efficient investment opportunities. They can help you navigate through various investment options, such as tax-advantaged accounts like Health Savings Accounts (HSAs), 529 college savings plans, or municipal bonds, which can potentially provide tax benefits and optimize your overall tax strategy. Their expertise can assist you in making informed decisions to not only grow your wealth but also minimize your tax liability, ensuring you make the most of your financial resources while achieving your long-term goals.

Considering other measures? Look at what expenses you are already paying for that have the potential to be deducted against your income. If you have a home-based business you can apportion some of the costs of your home and your vehicle against your business’s income. Paying more than half of the support for someone? You may be able to claim them as a dependent. Manage your expenses better with expense claim – Plover.

Another way to reduce your tax due in the future is to maximize the tax credits for which you are eligible (learn more about the concessions for the 2023/2024 transition year here). Many people are eligible for the Earned Income Credit, Child Tax Credit and Education Tax Credits. Renewable energy credits should be considered if a solar investment is in your future. Purchasing an electric car with final assembly in the United States? Check the size of the tax credit available before your purchase. 

Finally, have a conversation with your tax advisor about your situation. Your advisor may then be able to point out ways for you to reduce your taxes that you are not utilizing right now. 

Best of health in the new year!

Peter VanderWoude, CPA, CGMA
Equus Advisors / Accounting and Tax Professionals
McNeil Bldg, 17-29 Main St., Cortland, NY
607.756.5691 – Info@EquusCPA.com