Tax tricks that could save you thousands

Boost retirement contributions

Contributing as much as you can to your retirement — via, for example, an individual retirement account — is one of the best ways to reap a tax benefit.

If you work for yourself, you can also make tax-deductible contributions to a Simplified Employee Pension account, or SEP IRA. The limit is up to 25% of net earnings, for a maximum contribution of $56,000 this year. You still have until April 15 to open and fund a SEP IRA and have it count on your return.

 Fund a health savings account

Another way to reduce your taxable income is to contribute to health savings account, or HSA. (You need what’s known as a high-deductible health plan to do this). And, you have until the April deadline to do so for the 2019 tax year.

“Health savings account contributions can reduce your income eligible for taxation, as well as help with planning future medical costs,” said McInnis. “That’s always a good thing for your personal finances in the long run.”

  • You can contribute up to $3,500 if you’re single.
  • The limit goes to $7,000 for couples and families.
  • You can add an extra $1,000, if you’re 55 or older.

    Collect tax credits

    Tax credits are particularly valuable because they reduce your tax bill on a dollar-for-dollar basis.

    For example, families can deduct up to $2,000 from their federal income taxes for each qualifying child under 17. If you qualify, that $2,000 child tax credit will save you $2,000 in taxes.

    Parents who use a daycare or childcare service may also be eligible for the federal Child and Dependent Care Tax Credit (CDCTC) of up to $3,000 for one child or up to $6,000 for two or more. (To claim the dependent care tax credit, reach out to your childcare provider for a tally of the costs you paid, as well as the provider’s tax ID.)

    Dig for deductions

    The Tax Cuts and Jobs Act raised the bar on who will itemize, as you now must surpass the 2019 standard deduction of $12,200 for singles or $24,400 for married filing jointly.

    “Tax-filing strategies have been reduced partially because the standard deduction is about two times what it was beforehand,

    Check your withholding

    To that end, the Treasury Department and the IRS have updated the withholding tables to reflect the tax law’s new standard deduction, as well as the personal exemptions that were eliminated and the limits on certain itemized deductions.

    As a result, last year some filers wound up with smaller-than-expected refunds. Others ending up owing money.

    https://www.cnbc.com/2020/02/14/5-tax-tips-that-could-save-you-thousands-of-dollars.html