How to Lower Your Tax Bill in 5 Steps

If you’ve ever been surprised with a tax bill that you weren’t aware of, you understand what an annoying situation that can be. 

This article has been put together to help you with information on how to cut down on your tax bills. 

The strategies we’ve prepared for you are efficient and reliable. 

  1. Make Changes to Your W-4 Form

First, you can make some adjustments to your W-4, which is a form submitted to the employer. The W-4 helps your employer know the amount of money to be removed from your salary for taxes. 

In a situation where you had to pay more than you were expecting on your tax bill, you can increase the amount to be withheld by your employer on the W-4.

This way, you’ll have less to pay on your next tax return. In a vice-versa situation, the amount withheld via the W-4 needs to be reduced. You can always hire tax relief services if you can’t afford to pay past taxes that you owe.

  1. Put Money on Your 401(k)

If you didn’t know before, a lot of people make use of the 401(k) to lower tax bills. 

The way it works is that you’re able to reduce your taxable income while also lowering tax in the process. Funds sent to a 401(k) out of your salary aren’t taxed. 

In 2020, as much as $19,500 can be put in a 401(k). People above the age of 50 can put as much as $26,000 in the account.

  1. Contribute to IRAs

Another method of reducing your tax bill is to divert funds into an Individual Retirement Account (IRA). 

The amounts of funds that can be put in an IRA are affected by the retirement plan you use and the amount you get from your paycheck. 

There are two major types of individual retirement accounts: Roth IRAs and Traditional IRAs.

  1. Donate to Charities

You can get tax deductions on funds donated to charity. 

In addition to money, other material items like shoes, meals, and more can also contribute to an application for a tax deduction. Just make sure you get a receipt to reflect your contributions. 

  1. Save Money for College in a 529 Plan

Saving for college is a reliable way of reducing tax bills. Money put in a 529 savings plan will help you reduce taxes. 

These accounts are run by the desired college or the state. Hence, a 529 savings plan is able to reduce payment on state returns. 

Conclusion

Surprise tax bills aren’t pleasant. It’s always good to plan ahead so as to avoid them. You should consider adopting some of the methods we’ve just discussed to help cut off a part of your tax bill. 

If you have a kid, you can use the 529 plan to get a tax deduction on some funds. You can also get deductions on expenses incurred through contributions to charity. 

Whichever method you choose to go with, make sure you make a move on time before an unexpected tax bill hits you like a brick in the face. 

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