Tax evasion and tax planning are two different concepts. While you are not allowed to evade tax, there are no restrictions on planning things well to cut your tax bills. Whether you are a high networth individual (HNI) or an entrepreneur, there are ways in which you can reduce your tax amounts.
This guide will help you learn the basics of tax planning in Phoenix, so you can keep as much of your hard-earned money as possible.
Learning the Basics
The first concept that you should learn about is tax brackets. Based on your income, you fall within a tax bracket. These brackets have a ceiling limit that defines what percentage of your income shall be deducted as tax. Learn more about the tax rates and inflation adjustments for 2023 here.
Once you learn about your tax bracket, you can consult your tax planners to help you plan further.
Tax Saving Strategies You Should Know
Discuss these tax-saving strategies with your tax planners; you could potentially reduce a significant amount of taxes this year.
Investment in an IRA account
IRA stands for Individual Retirement Account. It is one of the most popular and common ways of saving taxes. IRA is a popular option for self-employed individuals, but you can use both the IRA and 401(k) plans.
However, there is a ceiling limit on how much you can put into your retirement accounts. The idea behind retirement accounts is simple; you invest in them, and they get deducted from your total income. You fall in a lower tax bracket, and it reduces your tax liability.
Store Cash in a Life Insurance Plan
Another way to save taxes is to have a cash value life insurance plan, which also secures your family’s future. There are different types of life insurance plans, but in all cases, the death benefits are tax exempt. The premiums may also be tax deductible if you are a business owner, but speak with a tax professional to be sure. The death benefit is the agreed amount your beneficiaries will receive after you pass away. You must pay monthly or yearly premiums, and the beneficiaries can withdraw them without requiring you to pay any tax. Life insurance policies also offer medical benefits if you are diagnosed with a chronic, critical, or terminal condition.
Learn more about life insurance in Phoenix before you purchase one.
Open a Health Savings Account
A Health Savings Account is a savings account that allows you to save money tax-free for eligible medical expenses you might need to incur before the age of 65. If you are 65 or above, you can spend the money for any purpose. But there is also a ceiling amount for investment in HSA.
Contribution to Qualified Charitable Institutions
If you are into philanthropy and also want to cut your tax bills, contributing to qualified charitable institutions should be in your tax planning strategies.
It allows you to make payments from your IRA account to qualified charitable institutions only if you are 70 ½ years or older. In addition, you can make a contribution of up to $100,000, saving you a considerable amount on taxes.
Claim Business Deductions
You can claim business deductions if you are an entrepreneur working from home. You can claim rent, power expenses, mileage, computers, software, other utilities, etc.
Do you know you can claim home office space at $5 up to $1500? Also, you can claim for any repair and maintenance, insurance, mortgage, etc. But only if you use the aforesaid part of your house exclusively for business.
Invest in a 529 Plan
If you have kids who are soon to go to college, or you want to save for your kid’s future education or repayment of student loans, investing in a 529 plan is a good idea. As a married couple, you can enjoy a deduction of up to $4000 if you are married and filing jointly. The ceiling limit is $2000 for an individual.
Invest in FSA
A flexible Spending Account allows you to invest in a saving account that you can use in the future for numerous expenses, including medical care, dental care, medical emergencies, and pregnancy-related expenses.
A dependent care FSA option is also available for those who have a dependent being taken care of. For example, if you have young kids or elderly parents, and you need daycare, elder care, etc., you can get a deduction of up to $5000.
Plan your Taxes with the Help of Our Experts
These are just a few ways to reduce your tax bill, but it is not always possible for you to consider all these important points when filing your tax return.
You need expert tax planners who can help you minimize the tax burden. Heroes Financial Group is what you need. Our experts handle clients from various niches and help them plan their taxes optimally.
Contact us today to get in touch with one of our experts.