President Joe Biden will roll out a plan to raise taxes on the wealthiest Americans, including the largest-ever increase in levies on investment gains, The change in tax structure will help the government in funding about $1 trillion in childcare, universal pre-kindergarten education, and paid leave for workers. The proposal calls for increasing the top marginal income tax rate to 39.6% from 37%. Here we list down some tips to save money on your income tax.
Boost your retirement contributions
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One of the best ways to receive a tax benefit is to contribute to your retirement plan. Investing in your Individual Retirement Account (IRA) will directly reduce your taxable income and help you save for your retirement. You can save up to a total of $6,000 if you are under the age of 50. Those over 50 can save up to $76,000.
Make the best of US federal tax credit
A tax credit can reduce your tax bill significantly. You can get a tax credit for adding solar panels to your house and buying a hybrid car. Families can also deduct up to $2,000 for each child under the age of 17. You can claim up to $3,000 per child through Child and Dependent Care Tax Credit (CDCTC) if you use daycare or childcare services.
Research your eligibility to get ahead of time and reap its benefits.
Do not forget about tax deductions
Tax deduction is yet another great way to maximize your savings. As a taxpayer, you are eligible for deductions from your property tax, mortgage interest, contributions to charity, and business expenses. Remember that the more deductions you get, the less tax you need to pay.
Payment timing matters
One has to pay taxes but, why do it now when you can do it later? Tax payments can be delayed by a year interest-free, If you postpone the bonus and invest it in your IRA. You can also change your mortgage and medical payments by doing it before the threshold. This way, you get a longer time to pay your taxes and make the best of deductions.
Earn tax-free income
Did you know that all types of income are not taxable? Income from investing in municipal bonds, selling your house, and health insurance are not taxable.
Also, consider investing in your children and saving for their education (a 529 plan) since this is not taxable. Remember that gift taxes are applicable for contributions to one beneficiary over $15,000.