HOW DO YOU REDUCE YOUR TAX BILL AS AN EMPLOYEE?

One thing I have constantly encountered with my customers when providing consulting sessions is the desire for them to pay the lowest amount of tax possible. That makes perfect sense when you think about it, after all, less taxes equates to more money in their pockets. Now the most infuriating thing I have witnessed thus far is the fact that THE WILL IS THERE, BUT NO ACTIONS TEND TO FOLLOW SUIT! Understand, People, that small actions go a long way!

Nonetheless, we will explore in this article how we can lower our tax bill and effectively prepare ourselves for the next tax season.

First thing first, we need to clarify and put a LOT of emphasis on one simple principle: The more your INCOME, the more TAX you’ll pay. Can you smell what I’m smelling? Great! Now you understand why so many rich people hide their money in tax havens and other similar structures.

Now let’s use that acquired wisdom and apply to your situation as an employee.

Though your options are considerably limited, here are a few things you would be wise to consider. Keep in mind that these options are helpful to reduce your income and thus your tax bill at the end of a given year. If you are looking to keep more cash in your hands, they might not necessarily be the best options for you.

Retirement account 401(K):

These days, 401(k) may be frown upon in terms of their potential as investing tools. Still, they remain pretty useful as they allow you to reduce your taxable income: The contributions to your 401(k) are not subject to tax until you reach the age of 65. you would definitely want to maximize your account (up to $20,500 per year in 2022) if your employer matches your contributions to some extent.

Health Savings Account (HSA)

This tax advantaged account is a vehicle allowing you to save some money for medical expenses for you and your family. Similarly, to a 401(k), no tax is levied from the money contributed to an HSA. In 2022, you may contribute up to $3,650 per individual or up to $7,300 per family. In addition to that, your employer can also contribute to your account, so You would be wise to maximize it should that perk be offered.

Charitable contributions to church:

You know what they say: “No good deed goes unpunished” right? Well wrong! You are able to itemize the donations you make to your church, granted they do not exceed 25% of your AGI. That being said, when filing your tax return, you will have to itemize your deductions, thus forgoing the standard deduction. As a result, please make sure to plan accordingly in order to benefit from this deduction. Should you need some guidance on that part, we are here for you!

Other considerations:

As you might already know, Businesses have a much bigger range when it comes to using deductions and thus benefit more from the tax code than employees. If you have a skill allowing you to generate some income, you might want to consider building a small business around it. You would basically write off your startup cost and offset it against your employee income for the same year. Of course, this is easier said than done, but this is why you have Accountants, and it is YOUR duty to find yourself a reliable one to work with.

Should you need some help to properly set yourself up for success, we offer some consulting aiming to offer you a tax planning strategy and if you already have one, potentially optimize it.

Do not hesitate to give us a call as we are always excited to serve you!

The team at Firenzanita!

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