Tax season is here, and if you’re like many Americans, you likely will have to pay some money to the IRS. No one likes to pay the IRS, and some deductions and credits can only help you so much. Thankfully, there are other ways to help cut your tax bill. Read on to learn more:
Adjust Your W-4
Whenever you get a new job, you will fill out a W-4 form. This will tell your employer how much tax to withhold from your paycheck. The more allowances you claim, the less money will be taken out of your paycheck; the fewer allowances you claim, the more money will be taken out.
Thankfully, you can adjust your W-4 at any time. If you got a big tax bill, you may want to consider increasing your withholding by taking out fewer allowances. This may mean your paycheck will be a bit smaller, but it will prevent you from having to pay a big tax bill later in the year.
Put Money into Retirement Accounts
Putting some of your money into a retirement account can give you a tax break. There are the traditional 401(k)s that your employers provide, but you can also invest in an IRA.
No matter if it’s a 401(k) or an IRA, you will have to choose between a Roth or a pre-tax contribution. A Roth contribution means that you pay the taxes upfront with each paycheck. A pre-tax contribution, meanwhile, means that you will pay the tax when you eventually take this money out after you retire. Roths are not tax-deductible, while pre-tax contributions typically are.
Use Your Flexible Spending Account
Some employers offer a flexible spending account (FSA) that allows you to funnel tax-free money from your paycheck for medical and dental expenses. This can further help you lower your tax bill and allow you to set money aside for medical procedures and everyday medical items such as bandages or pregnancy test kits.
At First State Investment Advisors, our financial advisors can help you create a tax planning strategy that will help reduce your yearly tax bill. Contact us today to learn more.