5 Ways to Reduce Your Tax Burden

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5 Ways to Reduce Your Tax Burden

Tax season will be here before you know it and the last thing anyone wants is a bill that is larger than expected or a refund that is smaller than they had hoped.

 In this blog, we will outline some tips on how you can make small tweaks to potentially reduce your tax burden and make this year’s tax season a bit easier.

1. Tweak Your W-4

If you got a big tax bill last year and don’t want the same surprise this year, raise your withholding a bit so you owe less when it is time to file your return. If you got a big tax refund, you are likely living on less of your paycheck than you should so you can reduce your withholding.

 There are no qualifying events for changing your W-4 and you can make those changes at any time.  Some employers offer portals for tax documents so you can change W-4 forms electronically. Ask your HR department if you have questions about your W-4 form.

2. Defer Money into Your 401(k)

Another good way to reduce your tax burden is by deferring money from your paycheck into your 401(k) or similar retirement savings plan. You are not taxed on the money that gets withheld from your paycheck into your 401(k).  For 2022, you can contribute up to $20,500 ($27,000 if 50 or older) into your 401(k) while avoiding any additional taxes.

Make sure to check if your employer matches your 401(k) contributions and what percentage they match up to.  Learn more from the IRS about 401(k) plans.

3. Save for College

If you have kids, chances are you already have a college fund set up for them. Regulations vary by state but contributing to a 529 plan could save you some money on your state tax return.

4. Keep a File of Your Medical Expenses

Medical debt is one of the largest weights on American families, but did you know that it could be tax deductible? In general, you can deduct any qualified medical expenses that are more than 7.5% of your income for that tax year. So for example, if you make $40,000 a year but had $10,000 in medical expenses after the first $3,000 the remaining $7,000 could be deductible. Read more from the IRS about medical and dental expenses

5. Add Money to an IRA

If you are already contributing to a traditional IRA, you might have tax deductions you can take. For 2022, you can contribute $6,000 per account per person ($7,000 if 50 or older) but you might not be able to deduct if you are covered by a retirement plan at work, are married and filing jointly, or if you make $129,000 or more a year.  Check with your tax accountant at MCK CPAs to confirm.

All in all, there are a lot of creative and easy ways to reduce your tax burden year-over-year. While this is by no means an exhaustive list, it is a good place to start if you are looking to save some time and money. Learn more from the IRS about IRA accounts.

Want more assistance? Contact the experts at MCK CPAs for help.