Robin Boyd of Cleveland is a professional corporate accountant specializing in strategic tax planning. In the following article, Antoinece Robin Boyd discusses the various strategies individuals can follow to reduce their taxable income, saving people money in the long run.
As the cost of living continues to rise in 2023, people are seeking new ways to reduce their taxable income. While it is important to pay taxes, there is no need for anyone to pay more than they have to. Putting money into everything from retirement plans to health savings accounts guarantees that income is being utilized in the manner most effective for them.
Checking Tax Codes
Antoinece Robin Boyd explains that depending on the salary, individuals will be assigned to one of seven federal income tax brackets. These brackets indicate the percentage of their income that will be collected in taxes, with these percentages ranging between 10% and 37%.
Robin Boyd of Cleveland says that it is important for employees to regularly check the tax bracket they have been assigned to, especially if they have recently changed jobs, as their assignment may no longer be appropriate. If the wrong bracket has been assigned, people can see a reduction in their monthly tax payments in addition to a refund for any overpaid tax.
Pensions
Making regular payments into either a 401K or an IRA can have a significant impact on an individual’s tax payments and save them money in the future explains Robin Boyd of Cleveland.
401K
A 401K is an employer-sponsored plan that allows contributions of up to $22,500 to be made to an employee’s pension each year. These contributions are made pre-tax in the form of paycheck deferrals. As such, by making these payments, an employee’s income is decreased, with this deduction working to move some people into a lower tax bracket explains Robin Boyd of Cleveland.
Individual Retirement Account (IRA)
This type of pension payment functions somewhat differently. These accounts are managed by various financial institutions rather than employers and enable people to develop their pensions through tax deferrals or tax-free growth.
Given that most people find themselves in a lower tax bracket after retirement, a tax deferral means that the pension money can be taxed at a lower rate, giving people access to more of their money explains Robin Boyd of Cleveland.
The maximum annual contribution to an IRA is $6,500, and this contribution is made with after-tax income. However, the money used to make these payments may be deductible from a person’s tax return.
Roth IRAs and Rollover IRAs are also available. The former includes the benefit of the money in the account becoming tax-free after certain conditions are met, such as a five-year aging period. Rollover IRAs allow people to move excess money from employer-sponsored programs into an IRA.
Health Savings Account (HSA)
Antoinece Robin Boyd says that a Health Savings Account is another way to store and save money tax-free. People with high deductible health plans (HDHPs) can withdraw and deposit money without paying tax on it, as long as the money is used on qualified health expenses. These health expenses include ambulance fees, prescription drugs, and hearing aids.
Robin Boyd of Cleveland says that there are no time constraints attached to these accounts, with the money contributed rolling over into the next financial year. The benefits of an HSA also include the possibility of the money being used by a spouse or dependent. The account is also not affected by employment status, whether someone changes career or retires, their HSA will remain intact.
Flexible Spending Plans
While Flexible Spending Plans are more widely available because they do not necessitate an HDHP, they do come with certain restrictions. Antoinece Robin Boyd says that employees can contribute up to $3,050 into an FSP a year with their pre-tax income. The money paid into the account can be used for the following expenses: medical devices, certain prescription drugs, insurance copayments, and deductibles.
However, it is important to remember that with FSPs, the money contributed must be spent within the same year. If the money is not used, the employee will have to forfeit it. Some employers offer roll-over plans, allowing a maximum of $610 to be carried over into the next financial year. A grace period of ten weeks is also offered by some companies.
Charitable Contributions
Robin Boyd of Cleveland explains that a charitable contribution is deductible from a person’s adjusted gross income. To receive the maximum tax deductions, people must donate to certain charities, specifically those that are tax-exempt. This includes charities such as the Red Cross, religious organizations, and museums.
Tax deductions are also available on expenses related to volunteering activities. Expenses such as fuel to travel to volunteer events or to deliver items to a donation site can be reclaimed.
Final Thoughts
There are several effective ways to reduce taxable income, and by following the strategies outlined in this article, not only can people save money, but they can ensure that their money is contributing towards resources that best benefit them.
