Taxes

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Tips to Save Money on Taxes

  • Contribute the maximum possible amounts to tax advantaged accounts
    • This includes contributing to the well-known tax advantaged accounts:
      • 401(k) Retirement Account
      • IRA (Individual Retirement Account)
      • HSA (Health Savings Account)
      • Health FSA (Flexible Spending Account)
      • Dependent Care FSA
      • Parking & Transit FSA
      • 529 College Savings Plan
    • This also includes lesser known strategies such as:
      • Post-tax contributions to 401(k) accounts (which can exceed the usual 401(k) contribution limits)
      • Using your HSA like a 401(k)
      • Backdoor Roth IRAs (which is a strategy for people with high incomes that don’t quality for a traditional IRA)
  • If both you and your significant other make a lot of money, don’t get married because you’ll be paying the Marriage Tax Penalty. Use this calculator to calculate the amount of the tax penalty.
    • The penalty kicks takes effect at around $180k in combined income (use the calculator to determine your exact penalty).
      • A couple that makes $300k in combined income can pay a $5k marriage penalty each year
      • A couple that makes $500k in combined income can pay a $15k marriage penalty each year.
      • Check out this New York Times piece for additional discussion on the marriage penalty.
  • Make qualified energy efficient improvements to your home
    • Install solar panels, a solar-powered water heater, geothermal heat pumps, wind turbines, or fuel cells that rely on a renewable resource (such as hydrogen)
    • Install better insulation in your home and get an energy audit from a qualified professional
      • These improvements can save you money in taxes and energy costs
  • Donate items around your house to charity for a tax deduction
    • Remember to obtain documentation from the charity in order to claim the fair market value of donated goods
  • When investing:
    • Hold high tax assets in tax sheltered accounts such as a 401k or IRA
    • Hold onto stock investments for longer than a year so that you can pay the long-term capital gains tax rate (which could be as low as 0% if you have less than $75,300 in taxable income)
  • Keep track of your medical expenses (expenses exceeding 10% of your adjusted gross income are tax deductible)
  • Check old tax returns for deductions missed and file an amended return
  • Claim your significant other as a dependent if they made less than $4,000 (and you aren’t married)
  • Get professional tax help for free if you make less than $54,000, are disabled, or don’t speak English well through VITA

Other actions which save you money on taxes, but don’t necessarily save you money in life, include:

  • Have a child (to get more personal exemptions on your tax return)
  • Financially support a non-child dependent (like your brother-in-law)
  • Get divorced and pay alimony for the rest of your life (alimony is tax deductible)
  • Move across the country for a new job (relocation expenses for a new job are tax deductible)
  • Pay qualified medical expenses due to a serious injury
  • Become blind
  • Become disabled