There’s a wealth of deductions that couples and parents of children can take to lessen their tax burden. Single people aren’t typically so fortunate, but there are ways that singles can utilize to reduce their monetary burden at tax time.

Adjust Withholding

A large tax refund is a good indication that an individual is having too much withheld from their paycheck. The solution is to file a new W-4 form with their employer. By reducing withholdings individuals will receive more money in each of their paychecks.

Health Care

A health care flex plan diverts money from a paycheck into an account that an individual can use to pay medical bills. Neither income taxes or Social Security taxes need to be paid on the money. The maximum contribution each year to a health care health plan is $2,500.

Job Hunting

For singles that are looking for a new position in the same line of work, job hunting expenses can be deducted. That includes transportation, food, lodging and other associated costs, not to exceed 2 percent of adjusted gross income. Moving costs can be claimed if a new job is more than 50 miles farther from the individual’s home. If the individual is using their own vehicle, they can claim 56 cents per mile, along with tolls and parking fees.

Restricted Stock

Taxes on stock received as a fringe benefit can be paid at the time of the stock’s value rather than until the restrictions disappear. The benefit is that the tax rate could be far more after the stock vests.

Side Hustles

Individuals that are making extra money at home through a side hustle can deduct a percentage of the space as a home office. However, individuals that make more than $400 may be taxed at the increased level reserved for the self-employed.

Pandemic

For singles that have been sharing their home with a family member of friend during the pandemic, if they’ve been providing more than 50 percent of that person’s living expenses, they can claim them as a dependent. Many people didn’t receive one or more of the three stimulus payments that were distributed by the federal government. For others, the full amount wasn’t received. Anyone that experienced one of those situations can claim the amount as a tax credit.

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

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The COVID-19 pandemic underscored the need to save for retirement and highlighted how many individuals are living paycheck to paycheck. Many individuals were unable to continue their contributions, while others were forced to withdraw funds due to pandemic-related situations. The following are some of the ways in which retirement contributions will affect your taxes.

Filing Status

Navigating tax-deductible amounts can be highly complicated and depends on your filing status, age, and the type of retirement plan you have. The best option to ensure accuracy on your income tax return is to seek the services of a professional accountant or tax preparer that will be knowledgeable in the tax laws governing multiple types of retirement accounts.

Roth IRA

Contributions to a Roth IRA are not deductible. You’ll pay the full amount of taxes on any money placed in the account. The trade-off is that you won’t pay taxes on contributions or investment returns after you retire and begin drawing money from the account.

Traditional IRA

Contributions to a traditional IRA reduces taxable income in direct proportion to the amount contributed. There’s a limit of $6,000 that can be contributed to the retirement plan. However, if you’re aged 50 or over, you can contribute up to $7,000.

Retirement & the CARES Act

The CARES Act in response to the COVID-19 pandemic added some changes to retirement funds and how they’ll affect your tax liability. The Act removed the 10 percent penalty on withdrawals if you’re under 59.5 years old. The tax liability can be spread over three years and an amended tax return can help regain money paid on the distribution if you’re paying back the account.

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

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Are you paying too much in income taxes?  Are you getting all the credits and deductions you are entitled to?  Here are 7 tips to help you minimize taxes and keep more in your pocket:

1. Participate in company retirement plans. Every dollar you contribute will reduce your taxable income and thus your income taxes.  Similarly, enroll in your company’s flexible spending account.  You can set aside money for medical expenses and day care expenses.  This money is “use it or lose it” so make sure you estimate well!

2. Make sure you pay in enough taxes to avoid penalties. Uncle Sam charges interest and penalties if you don’t pay in at least 90% of your current year taxes or 100% of last year’s tax liability.

3. Buy a house. The mortgage interest and real estate taxes are deductible, and may allow you to itemize other deductions such as property taxes and charitable donations.

4. Keep your house for at least two years. One of the best tax breaks available today is the home sale exclusion, which allows you to exclude up to $250,000 ($500,000 for joint filers) of profit on the sale of your home from your income.  However, you must have owned and lived in your home for at least two years to qualify for the exclusion.

5. Time your investment sales. If your income is higher than expected, sell some of your losers to reduce taxable income.  If you will be selling a mutual fund, sell before the year-end distributions to avoid taxes on the upcoming dividend or capital gain.   Also, you should allocate tax efficient investments to your taxable accounts and non-efficient investments to your retirement accounts, to reduce the tax you pay on interest, dividends and capital gains.

6. If you’re retired, plan your retirement plan distributions carefully. If a retirement plan distribution will push you into a higher tax bracket, consider taking money out of taxable investments to keep you in the lower tax bracket.  Also, pay attention to the 59-½ age limit.  Withdrawals taken before this age can result in penalties in addition to income taxes.

7. Bunch your expenses. Certain expenses must exceed a minimum before you can deduct them (medical expenses must exceed 7.5% of your adjusted gross income and miscellaneous expenses such as tax preparation fees must exceed 2% of your AGI).  In order to deduct these expenses, you may need to bunch these types of expenses into a single year to get above the minimum.  To achieve this, you might prepay medical and miscellaneous expenses on December 31 to get above the minimum amount.

The most important thing is to be aware of the tax deductions and credits that apply to you and to plan for taxable events.  And don’t be afraid to ask for help.  The benefits from consulting an experienced tax professional far outweigh the cost to hire that professional.

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

Contact Us Today