According to a recent report, Americans owed $114 billion in back taxes, interest, and penalties in 2020. Clearly, it is easy to fall behind on your taxes, regardless of the consequences that can come with it.
One of the best ways to stay ahead is by learning how to save money on taxes. This can help you get them done faster and on time, saving you the headache of dealing with them later on.
If you’d like to learn more, keep reading our guide below.
1. Adjust Your W-4
Your W-4 is the form you fill out for your employer when you first start your job. This will determine the percentage of taxes taken out of your paycheck.
If you owe a large amount of money when you do your taxes this year, consider adjusting your W-4. You can raise your withholding amount, so when you do your taxes next year, you won’t be hit with a huge surprise bill.
If you receive a larger refund than expected, you can reduce your withholding amount. This will allow you to receive larger paychecks throughout the year.
2. Put Money in Your 401(k)
The IRS does not tax money that goes from your paycheck directly into your 401(k). When you have less taxable income, you are automatically paying less in taxes.
Many employers sponsor 401(k) accounts, but self-employed people can also open up a 401(k).
For 2022, you can contribute up to $20,500 per account, not including what your employer has contributed. If you are 50 or older, you can contribute an extra $6,500 per account.
3. Contribute to a Health Savings Account
If you have a high deductive health plan (HDHP), a great way to save on taxes is by contributing to a health savings account (HSA). When you contribute to an HSA, it is with pre-tax income, so you won’t be taxed.
This is the same when you withdraw from your HSA, as long as the funds are used for qualifying medical conditions.
For 2022, you can contribute up to $3,650 if you have individual coverage or $7,300 if your health plan covers your family.
4. Itemize Your Tax Deductions
One of the most important tax tips and tricks is getting the most from your deductions.
Many people will benefit from taking the standard deduction, but depending on your situation, itemizing your deductions may get you back the most money.
If you are a homeowner in a high tax state and have made significant charitable donations in 2021, you should consider itemizing your deductions.
If you are unsure of the different types of taxes and deductions, consider hiring a tax attorney to give you peace of mind knowing your taxes are taken care of properly.
Use These Tips to Learn How to Save Money on Taxes
When you’re learning how to save money on taxes, you may become overwhelmed with all of your different options. There is a lot to learn, and it will take a bit of hard work to get them done right.
Remember, if you don’t feel confident doing your taxes yourself, you can always hire a professional to do them for you.
If you would like more lifestyle articles like this one, check out our website’s collection of blog posts.