5 Ways to Maximize Your Tax SavingsMar 8th, 2017 | By Sarah Glenn | Category: Commentary
By Jennifer Landon/Journey Financial Services
I know people dread tax season, but I didn’t realize the extent of that dread until I read the results of a 2016 WalletHub Survey. According to the data, 27 percent of Americans would rather get an IRS tattoo than pay taxes. Another 11 percent would prefer to spend three years cleaning toilets at Chipotle than write the IRS a check.
But, no matter how much someone dislikes paying taxes, the fact is taxes are due April 18 this year and that deadline is looming. So, you can make a choice—dread the process and fill out the forms or learn the best ways to maximize your savings so you can benefit from paying yourself instead of the taxman.
The following are five ways that may help you lessen your tax hit. And, just in case you have already filed this year, print this list and incorporate it into your tax planning for next year.
Maximize retirement savings. If you have access to a 401(k) plan, aim to contribute at least to the maximum amount your employer will match. Contributions for 401(k)s are capped for this year are $18,000 for those under 50 and $24,000 for those 50 and over. In addition to any company plans, you can also contribute up to $5,500 to a traditional IRA ($6,500 if you’re 50 or over). If you’re self-employed, you can contribute up to $53,000 (or 25 percent of compensation) in SEP IRA contributions for 2016. These tax-deferred accounts may provide an immediate tax deduction to you while contributing to a tax-advantaged savings vehicle for your retirement goals.
Consider a Roth IRA. Is a Roth right for you? It depends. A Roth IRA is a retirement account where you pay money on taxes going into your account (so no deduction for this year), but then the growth and future withdrawals are tax free in retirement. Roth contribution limits are the same as for a traditional IRA, with the caveat that your income must be under certain levels to contribute. For individuals, the amount you may contribute begins to phase out once you reach an annual income of $118,000 and is completely gone by $133,000. For married couples filing jointly, contribution amounts begin to phase out at $186,000 and are gone by $196,000. If you are above these income thresholds, you still have options to access the benefits of Roth IRAs through conversion strategies. Be sure to speak with a qualified professional to see if this technique make sense for your situation.
HSA. An HSA (Health Savings Account) provides tax saving opportunities for current and future healthcare costs. The HSA offers a triple tax advantage. First, contributions are tax deductible. Second, the interest earned on the account is tax free. Third, account owners are allowed to make tax-free withdrawals to pay for qualified medical expenses. The maximum annual contribution for 2016 is $3,350 for individuals enrolled in self-only coverage and $6,750 for individuals enrolled in family coverage.
Donate to charity. This strategy serves two purposes. It can reduce your tax liability while also giving back to causes that you believe in. When making charitable contributions, make sure you get receipts for your charitable donations. Also, before you cut a check, find out if the organization qualifies for tax deduction status. If you itemize your taxes, these contributions will help reduce your taxable income. According to the IRS, in 2016 you may deduct up to 50 percent of your adjusted gross income, but 20 percent and 30 percent limitations apply in some cases.
Meet with a professional. Work with someone who can take a comprehensive view of your particular situation and advise you on all of the tax-saving strategies that are available to you.
Remember, the tax laws are constantly in flux. These strategies and figures relate to what is currently in place. To know the latest changes, go to irs.gov or check with a professional.
About Jennifer Landon, Southeast Idaho’s Financial Educator
Jennifer Landon, founder and president of Journey Financial Services, is an accomplished advisor, educator and presenter on financial topics. Landon has spent the last decade advising Idaho Falls residents on the wealth and retirement planning strategies needed to help them achieve peace of mind on their retirement journey. She is an Investment Advisor Representative and a licensed life and health insurance professional in the state of Idaho. Landon is a member of Ed Slott’s Master Elite IRA Advisor Group, the National Ethics Association (NEA) and the Better Business Bureau. For more information about Jennifer Landon and Journey Financial Services, please call (208) 552-9169 or visit www.JourneyRetirement.com.
Jennifer Landon is an Investment Advisor Representative with Allegis Investment Advisors LLC, an SEC Registered Investment Advisor. 591 Park Avenue ste.101 Idaho Falls, ID 83402.