Hello everyone! This is Donna from Donna J. Jackson & Associates, PLLC. It seems that topic on everyone’s minds these days: how can I get more tax savings? I think we can all agree that no one likes taxes except the people receiving them! That being said, we recommend that you Find a Tax Professional for Tax Savings in the Oklahoma City metropolitan area to assist you in finding out the finer ways to save money. Nevertheless, in this article, we’ll take a look at how ordinary taxpayers can save extraordinary amounts with just a little knowledge. At the end, there’ll be some helpful links to take your savings to the next level.
One telling indication that you’ve taken too much out of your taxes is if you receive a gigantic tax refund this year, with your paychecks seeming a bit lower than expected. Filing a new W-4 with your employer (usually handled by human resources/payroll) will make sure that you receive more of your money when you earn it and less as a “present” to yourself once a year. This can lead to hundreds—if not thousands—of cash that stays in your pockets, so don’t be afraid to give yourself a raise!
If your employer offers a medical reimbursement account (sometimes referred to as a “flex plan”), you should definitely enroll in it. The beauty of a medical reimbursement account is that it allows you to divert a part of your salary towards an account which you can later use to pay off your medical bills. This might give you peace of mind in the case of a medical emergency, but it bears other benefits, as you can avoid both Social Security taxes and income taxes on the money put away. The limit for contributions to this account is $2,500.
A good strategy for medical reimbursement account takes a little bit of foresight. If you have plans to get married, divorced, give birth to a child, or decide to adopt a child during the year, you can adjust the amount you’re setting aside in the account. If you anticipate future medical bills, then it makes sense to steer your pretaxed money into the account; conversely, if you anticipate fewer bills, pulling back on your contributions can help you avoid the account’s “use it or lose it” rule.
Paying Child Care with Pre-Taxed Funds
If you aren’t careful, you could be paying excessively for child care. The reason being is that you may not be taking advantage of the child-care reimbursement account at your place of employment to pay those bills. If you do, you can use pre-taxed income, which typically works out to one-third of the original cost because you avoid the deductions made from income tax and Social Security tax.
If you believe that your taxes will skyrocket in the future or you are looking for a way to diversify your taxable income for your retirement portfolio, it may be a wise decision to shift a portion—if not all—of your retirement plan contributions to a Roth 401(k). The difference between a normal 401(k) and a Roth 401(k) is that you don’t get a tax break when your money goes into a Roth. However, your money coming out of a Roth 401(k) in your retirement will be tax-free; on the other hand, a normal 401(k) will be taxed in the top tax bracket that you fall under. Consult an Accountant or a qualified Tax Preparer to determine if this switch can save you significantly.
Here’s a tip if you run your own business: you have a number of choices for retirement account that can save you big come tax time - and in the future. These include Koegh plans, SEPs (Simplified Employee Pensions) and individual 401(k)s. The advantage is simple: contributions to these plans cut your tax bill now. Earnings in your retirement grow tax-deferred. It’s win-win!
If you’ve received restricted stock as a fringe benefit, it may be a good decision to make an 83(b) election. This election allows you to immediately pay tax on the stock’s value rather than waiting until the restrictions disappear when a stock vests. Paying tax sooner rather than later has a few benefits that you can take advantage of. By paying tax on the value as soon as your purchase the stock rather than later allows you to only be subject to the value and tax rate of the stock then, not later when the value may rise, which subjects you to more tax responsibilities. The taxes that occur between then qualify for a comparatively favorable capital gains treatment. Of course, the catch is that this election can only be completed within the first thirty days after receiving your stock. Act now!
If you’ve found a new job, try to determine if that new position is 50 miles or further from your old home than your old job was. If it is, you have the ability to deduct the cost of your move even if you don’t itemize your expenses. If you’ve never worked before and this is your first job, there is a mileage test that requires you to work at least 50 miles away from your old home. You are also entitled to deduct the cost of moving yourself and your belongs—this even includes your pets, as they count as property! In addition, you can deduct $0.235/mile, plus tolls and parking.
Donna J. Jackson & Associates, PLLC