When it comes to tax season, the goal for most if not all taxpayers is to get the maximum refund possible. Are you doing everything you can to get your maximum refund? Most of us claim zero dependencies on our W-9s, maybe pay some extra taxes per paycheck, and quit.
Last year, the IRS received more than 16 million tax returns. The average payback was about $2,306. Getting such a refund is nothing to sneeze at; however, that doesn’t mean we can’t do better. There is undoubtedly a plethora of ways to reduce your tax burden in order to get the maximum refund possible for you. Below are some suggestions from financial experts.
Myra Alport, an accredited financial advisor with over 30 years of industry experience, has a few suggestions about charitable giving.
“The 2021 special tax benefit that allowed cash donations of up to $300 for single taxpayers or up to $600 for married couples has not been extended in 2022. There are a number of ways taxpayers can get more bang for their buck with charitable donations in 2022, as long as they’re made to “qualified” public charities as rated by the IRS.”
Myra explains that taxpayers who are 70-½ or older can make a Qualifying Charitable Distribution (QCD) from an Individual Retirement Account (IRA) to an eligible charitable organization. She states, “This tax-free transfer of cash or stock is permitted as long as the distribution (up to $100,000 per year) is paid by the custodian directly from the IRA.”
This type of tax break can be beneficial when taxpayers are required to take their required minimum benefits (RMD) from age 72.
Another charitable option for taxpayers of any age is to donate prized stock you’ve owned for a year or more directly from a taxable brokerage account to charity. “Taxpayers will receive a charitable tax deduction for the full market value of the stock at the time the donation was made.”
When using this method, donating up to 30% of your adjusted gross income is the donation limit.
Did you know that you can also gift shares to a family member or one of your children? It’s true. You can gift up to $15,000 in stock or $30,000 for a married couple to a relative of your choice.
The tax benefits here are twofold. First, the donor can avoid potential capital gains taxes by selling the gifted stock. Usually, the recipient of the shares is a retired parent or child who is not yet in the workforce. The reason for this is to gift the shares to someone in a lower tax bracket than yourself. Once the recipient sells the stock, they will keep more of that money than you would have.
Deborah Meyer, financial planner at CPA, founder of WorthyNest and author of Redefining Family Wealth, has some tax-reducing ideas related to investing.
“Contributing to a retirement account is a great way to save for the future and lower your tax bill at the same time. If you didn’t qualify for an employer-sponsored retirement plan in 2021 but earned wages, you can make a traditional IRA contribution on or before the tax deadline (April 15, 2022) and count it as a tax deduction for 2021.
The maximum annual amount you can contribute to Traditional and Roth IRA accounts combined is $6,000. If you are 50 or older as of 12/31/2021, this amount will increase to $7,000. If your taxable wages are less than this amount, your combined IRA contribution is limited to your total compensation earned.
Deborah’s other suggestion is more long-term. “Roth IRA contributions, while not currently tax-deductible, can be an excellent long-term tax strategy because you don’t have to make Roth IRA distributions during your lifetime. Income and qualifying withdrawals are tax-free.”
Mercer Street Company founder Ryan Firth has another worthwhile way to lower your tax bill. “If the plan participant is enrolled in a high-deductible health plan on December 1, last year, they can set up a Health Savings Account (HSA) and make a $3,600 contribution through 2021 (plus an additional $1,000 catch-up fee). when he gets older). 55 or more).”
In this case, the contribution reduces taxable income, and unlike an IRA, there are no income restrictions.
Ryan also has a method for those of us who are self-employed. “A Simplified Employee Retirement (SEP) IRA is also one way to get tax deferrals, but most employers don’t offer one, but if you’re self-employed you can set one up. You have until the date you file your tax return to contribute to a SEP-IRA for the previous year.”
When it comes to tax time, we can always do more to reduce our tax burden. Donating to charities, investing in retirement accounts or opening a Health Savings Account are just some of the options we have. However, before you do anything with your taxes, take the time to talk to an expert to make sure you get your maximum refund.
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Jeff is a fan of all things finance. When he’s not changing the world with his blog, you can find him on a run, playing a Mets game, playing video games, or just playing with his kids.
This post 8 Easy Ways You Can Lower Your Tax Bill
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