Hello everyone, Murphy here! Unfortunately, inflation and interest rates have been rising this year. This means it has become vital to find ways to save money. With tax season just around the corner, your upcoming tax bill is an excellent place to start. So, let me walk you through some tips and tricks for maximum tax savings.
7 Ways To Save Money Next Tax Season
1. Stash cash in your 401(k)
Saving for retirement with a traditional 401(k) plan benefits you now and later. The IRS won’t tax up to $20,500 of your contributions to this job-attached savings plan in 2022. (The max is $27,000 if you’re at least 50 years old.) So, your tax-deferred 401(k) contributions will lower your total taxable income for the current year. In addition, many employers fully or partially match contributions, boosting your investment funds for the future.
2. Contribute to an IRA
Roth and traditional individual retirement accounts (IRAs) are also eligible for tax-deferred benefits. You can avoid taxes on up to $6,000 (or $7,000 if you’re at least 50) in total IRA contributions for 2022. But those limits depend on other factors, like your income and any retirement plans you or your spouse have through an employer.
3. Open a college savings account
Funds deposited in state-managed 529 college and education savings accounts (ESAs) are taxable. However, the returns on your investment are tax-free with eligible withdrawals. There’s no annual contribution cap, but the IRS applies a gift tax on more than $16,000 yearly contributions per child.
Though every state has unique 529 plans, you can also explore out-of-state options. Do research before choosing the best one to help finance your child’s or grandchild’s education. You can also supplement a 529 plan with a Coverdell ESA, which allows up to $2,000 in contributions annually per child.
4. Start a health savings account (HSA)
Reap multiple benefits through an HSA by avoiding taxes on your contributions, investment gains, and eligible withdrawals. The maximum in 2022 is $3,650 for individual healthcare plans or $7,300 for family coverage. If you’re 55 plus, add $1,000 to the limit. What’s more, an HSA helps you budget for high-deductible medical expenses. Consider an employer-managed flexible spending account (FSA) if you have a low-deductible plan.
5. Invest strategically in energy efficiency
Two programs let homeowners earn tax credits when they purchase eligible energy-efficient equipment for their residences. For example, you can recoup up to 10% ($500 limit) on your investment through the Nonbusiness Energy Property Credit. The Residential Energy Efficiency Property Credit also allows up to a 25% credit for your 2022 wind, solar, and geothermal residential equipment purchases. These programs have been restructured and renamed for 2023 and beyond.
6. Save as an educator with eligible deductions
You may deduct up to $300 on your taxes for classroom supplies if you’re an eligible educator. No itemization is required. Qualified educators include teachers, principals, aides, counselors, and instructors at public and private kindergarten, primary, middle, and high schools.
7. Claim your adoption credit, if applicable
Have you grown your family through adoption? Congratulations! Here’s some more good news. If you finalized the process in 2022, you could claim up to $14,890 as an adoption credit. But understand that it’s not a refund. The amount can only reduce the taxes you owe. Income limits and adoption eligibility criteria also apply.
Ask the Nerds
Our CPA Nerds have the remedy when tax topics and filings give you headaches. We can answer your questions and help you lower your tax bill for the upcoming season. Contact us today and learn how we can simplify your taxes.