KEEP YOUR MONEY:
4 Tax-saving Strategies for 2016
I can honestly say that I’ve never met a client who wanted to pay more taxes than legally required of them. Actually, not many people enjoy the idea of paying taxes at all, but it does cost money to live in a society with paved roads, public schools, social programs and more.
So, what strategies can you employ to make sure that your tax price tag is the lowest amount it can be?
- Maximize all of the pre-tax opportunities offered by your employer. These opportunities include contributions to tax-deferred retirement plans such as 401ks or 403bs, Simplified Employee Pension (SEP) plans, Savings Investment Match Plan for Employees (SIMPLE) IRA plans and a host of other types of retirement plans. Setting aside money tax-free is great, but saving money for retirement is the icing on the cake. As a side note, seek the advice of a qualified investment advisor because setting aside money tax-deferred is not always the best option for your specific objectives.
- Maximize your contributions to your Health Savings Account (HSA) plans or flex plans. This allow you to pay for out-of-pocket qualifying medical expenses with pre-tax earnings. This is a great tax saver because it also allows you to save both income and social security tax on the money, which is like saving 20 to 30 percent or more compared with spending after-tax money on your medical expenses. This strategy is not only a great way to save taxes, but also helps reduce the cost of your medical care. Double bonus!
- Take advantage of dependent care benefits offered by your employer. This allows you to set aside up to $5,000 to be used for dependent care expenses. The care must be for children, age 12 and younger or disabled children of any age.
- Save for your child’s college expenses with a state-sponsored 529 college savings plan. With a 529, you can earn money on your investment tax free, and, in the state of Indiana, you can receive up to a 20 percent refundable tax credit of up to $1,000 per year. Encourage your working child to contribute to the same 529 plan as well, and they too can qualify for up to a $1,000 tax credit per year. Free money is hard to pass up when you have or expect to incur post-secondary education expenses.
There are many tax saving strategies available to help you reduce your tax burden, and these four strategies just barely scratch the surface of ideas. Wherever you are in life, I recommend that you speak with a tax professional to learn more about the options available to you.
Contact us directly when you’re ready to set an appointment.
Contributed by: Tina L. Moe, CPA, President & CEO