4 Ways to Lower Your Tax Bill

Taxes are unavoidable, but there are a few ways to lower your tax bill and minimize the impact they have on your bank account.

  1. Use a Flexible Spending Plan
    Flexible spending plans, or flexible spending account (FSA), are pre-tax plans that allow you to pay certain expenses with tax-exempt dollars. These certain expenses include dependent care, medical expenses and health insurance. This account is typically managed by an employer who will set aside a portion of your earnings in a separate account. According to the use-or-lose provision, participating employees must incur eligible expenses by the end of the plan year or forfeit all unspent amounts.
  2. Give Back
    Charitable contributions are a guaranteed way to reduce your tax bill. There are many ways to give back beyond writing a check. Shelters and other organizations are always happy to accept toys, books, clothing and any other household items. Your time is not a deductible, but if you travel to an event where you represent a charity, those expenses can be a deductible. If you buy an item such as a computer and donate it to a charity for its own use, that can be a write-off.
  3. Save Toward Retirement
    The easiest way to reduce your taxable income is to maximize your retirement savings. A 401(k) is an employer-sponsored plan that employees can make contributions to. In some cases, the employer might even match contributions from the employee. There are two basic types of 401(k)s- traditional and Roth. While they are similar in most respects, they differ in how they are taxed. Taxpayers who have an employer-sponsored retirement plan may be able to deduct some or all their traditional IRA contributions from taxable income.
  4. Buy Things That You Need
    The deduction for items is usually only a fraction of its true cost. This means that you should not buy something, like a new computer for a home-based business, at the end of year just for the sake of a quick and easy deduction. When purchasing work-related items at the end of the year, make sure it is something that you needed to buy regardless of the tax write-off.

These four tips can help to ensure that you have a lower tax bill when tax season rolls around.