Each year eight out of 10 people get a tax refund averaging more than $2,600. However, there are still millions who will owe taxes in the spring. If you are one of those people, here are a few ways to reduce the chances of having to pay.
Give more to yourself
Reducing your gross income is one way to lower your taxes. You can do this by contributing to your employer-sponsored retirement plan. The amount you contribute, up to a limit, will not be included in your tax figures when completing your returns. You’ll still pay FICA taxes (Social Security and Medicare) if your employer participates, but will avoid ordinary income taxes on contributions. In 2018, you can contribute up to $18,500 to your 401(k) or similar retirement savings plan. That amount goes up to $24,500 if you are 50 or older by the end of the year and take advantage of the $600 catch-up contribution.
Do more with pre-tax dollars
Participate in your employer-sponsored flexible spending account (FSA), if your employer offers one. If you think you’ll incur a lot of medical expenses during the year, an FSA allows you to set aside pre-tax dollars, to pay for those expenses. In 2018, you can contribute up to $2,650 to this account. Check with your human resources representative to see if your employer offers such a plan and how to contribute.
Change your withholdings
One reason you may owe money to the IRS is you’re not withholding enough money from your paycheck. Withholding less means more take-home pay with each paycheck. However, it also increases your chances of owing money to the government at tax time. Use the IRS withholding calculator to help you figure out your federal income tax withholdings. It’s also a good tool to help you make sure your employer is withholding the correct amount from your pay. If not, update your Form W-4 with your employer.
Look for tax credits and deductions
Tax credits are a good way to help reduce the amount of your tax bill. Credits go directly against taxes due, so don’t let them get by you!
Ask your tax advisor about itemizing your deductions. While the standard deduction is certainly easier, it may be better to itemize.
Let the Credit Union help
Whether you prefer to do your taxes yourself or you need help from a professional, LGFCU can help. If you like doing taxes yourself, members can get a special discount using TurboTax online. If you prefer to leave it to the professionals, there’s low-cost tax help available at your nearest branch.
The advice provided is for informational purposes only. Contact your tax advisor for additional guidance.