With the end of the year quickly approaching, now is the time to consider ways to reduce your income tax bill.
The following list contains pretax deductions to consider. These items would be done through your online HR portal. Let us know if you want any help taking advantage of these benefits.
- 401(k) deductions — Have you determined if Roth 401(k) or traditional 401(k) contributions are best for you? Traditional 401(k) contributions can be an effective way to keep your income at a certain level if you are nearing a phaseout for a deduction.
- Childcare — Does your employer have benefits that could lower your tax bill? This may be possible with a Flexible Spending Account or similar account.
- Spend the balance of your Flexible Spending Account.
- Consider your health insurance plan and whether a Health Savings Account (HSA) account is available. HSAs can be a great way to reduce your taxable income.
- Make sure to be reimbursed for business expenses, if possible. This is especially true if you won’t hit the 2% threshold on the job expenses section of Schedule A.
Depending on your income level, you may be eligible for deductible IRA contributions, or possibly Roth IRA contributions. The former will reduce your tax bill this year, while the latter would allow for tax free withdrawals in the future.
Charitable donations are another way to increase your Schedule A deductions. Remember that if you have appreciated assets in a taxable investment account, those shares are more advantageous for you to gift than cash. We are happy to help facilitate that process.
Another charitable deduction to consider is to gift clothing and other household items at year end. Don’t wait for spring cleaning, make the donation now to get the tax deduction for this year.
Do you have children or grandchildren whom you would like to help with college costs? You can reduce your state income tax burden with a 529 contribution (assuming your state allows such a deduction). In Illinois, the maximum deduction is $10,000 per parent per year ($20,000 for married filing jointly).
Lastly, if you are an IRA owner over the age of 70.5, consider using the qualified charitable distribution to gift the required minimum distribution (RMD) amount directly to charity.
Interested in more year-end strategies? Click here to read about year-end financial planning opportunities.