Did you know you spend almost four months of every year working to pay the IRS? (1) The general consensus is pretty clear: taxes are no fun! For many, just the thought of having to prep and file can cause great distress. To add to the misery, the realization of four months’ worth of your hard work and energy being handed right over to the government can really be the salt on an already raw wound. Ouch.
Nonetheless, taxes are a necessary evil. You may not always agree with how your tax money is spent, but there’s no denying it also improves your quality of life. In light of this truth, paying your taxes diligently is one thing, but paying more than you have to is another. Overpaying should be avoided at all costs. And, surprisingly, it’s often not. Most people won’t be bothered to invest some time in financial planning, and they pay more taxes as a result.
You want to enjoy what is rightfully yours, not heedlessly hand more of your hard-earned money over to the government. Here are a few easy ways to make that happen.
Make The Government Pay For You
Did you know it is possible to save for retirement and lower your tax bill at the same time? It’s true, Uncle Sam eliminates taxes on the money you contribute to Individual Retirement Accounts (IRA or Roth IRA). If possible, capitalize on this advantage by contributing the maximum amount of $6,000 per year ($7,000 for those 50 and older). (2)
Know Your Tax Brackets
This one can make a huge difference. By familiarizing yourself with the different tax brackets, you can accelerate or delay your income to avoid falling at the low end of a tax bracket. Keeping yourself at the high end of a bracket can lower your tax rate.
Harvest Your Losses
Normally, selling your losing investments isn’t a good idea. However, if you do it to offset the gains from your high-performing investments, it can be an effective tax-reducing strategy. Then, after 30 days, you can re-purchase the stocks you sold.
Build Up Your Health Savings Account (HSA)
If you’re eligible for an HSA, this is something you definitely should be doing. The 2019 annual contribution limit is $3,500 for individuals and $7,000 for families. Healthcare expenses are inevitable—you might as well pay for them with tax-sheltered funds. (3)
Create A 529 Plan
The price tag on higher education here in the U.S. is ridiculously high. If you’re planning on helping your children (or grandchildren) with those costs, opening a 529 plan is the way to go. Not only will this fund grow tax-free, but you’ll also be able to deduct contributions and lower your tax bill (state-dependent).
These are just a few of the many effective ways to reduce your tax bill. Each one essentially frees you up a little more to work more days for yourself—and fewer days for the IRS. If you want to be sure you’re not giving Uncle Sam more than his fair share, your best bet is to get expert help. In most cases, the cost to work with a professional advisor will pay for itself many times over in tax savings.
At1on1financial, we’ll not only help reduce your tax bill, but we’ll also create a personalized plan to help you achieve your financial goals. To learn more about how we can help, call our office today at 909-981-1720 or simply click here to schedule a free 15-minute introductory phone call!
Philip A. Board MSFS, CFS, is a retirement planning specialist and the founder of 1on1financial, an independent comprehensive investment firm serving individuals and businesses throughout the United States. He is also the owner and CEO of Medi-cal Benefits.