There are a number of ways that even the average taxpayer can utilize to reduce their taxable income, thereby mitigating their tax burden. Those methods are also available to lower income earners of less than $100,000 per year. The following are just a few of the ways that people can use to lower their taxable income.
Charitable Donations
Taxpayers will need to itemize deductions to take advantage of the credit if they contribute more than $300 in cash or goods. Those with cash donations of $300 or less can also claim the deduction.
Earned Income Credit
Even individuals that aren’t required to pay taxes may qualify for the earned income tax credit (EITC) worth a maximum of $6,660, providing they meet income limits and other criteria. It’s available for single people with no children and married couples with 3 or more children.
Education
Higher education costs can net individuals a $2,500 per person tax credit. Adults that return to school or training can receive a $2,000 credit per year.
Health Care
A flexible spending account (FSA) or health savings account (HSA) sets aside a portion of earnings for out-of-pocket health care expenses and the money is untaxable. FSA contributions are limited to $2,750 per year and HSA contributions are capped at $3,600 per individual.
Home Business
Anyone operating a business from their home can claim a deduction for a portion of their home used as their office, equipment and supplies. The deduction can also be beneficial for individuals that have a side-hustle or are working in the gig economy.’
Military
Active military and military reserve personnel can deduct moving costs associated with a change of duty station.
Mortgage Insurance
Premiums to private mortgage insurance companies can be deducted if deductions are itemized.
Retirement Savings
Employer-sponsored retirement plans such as 401(k) and 403(b) can contribute up to $19,500 and people over 50 can make catch-up contributions. The contributions are made before taxes and don’t count toward taxable income. An IRA serves the same purpose for those that are self-employed, though the contribution amounts are different.
Self-Employment
People that are self-employed can deduct 50 percent of the amount paid from income taxes to compensate them for paying the full amount for Social Security and Medicare taxes. Itemizing deductions isn’t required.
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!