Posted by Jim McClaflin, EA, NTPI Fellow

How To Reduce Your Income Tax Losses

How To Reduce Your Income Tax Losses

Despite how patriotic we are, the amount that goes out to the government as income tax affects us and we would rather have it reduced. Everyone wants their paycheck to remain intact. But since we have a duty to the government, we have to pay our dues to the Internal Revenue Service.

All personal incomes are subject to income tax. And an increase in your income may just push you into paying higher income taxes which may be an inevitable loss. A higher income could mean it is bumped into a higher tax bracket. That would only mean that you have to pay higher tax rates.

This tax may appear rather unavoidable. But Accounting & Tax Professionals in  Grimes, IA notes that you can reduce their impact on your bottom line if you have a plan.

Tax professionals such as Accounting & Tax Professionals in Grimes, IA provide taxpayers with valuable information that they can then use to minimize the weight of income tax.

Income taxes are based not on a person’s gross income, but on their adjusted or taxable income. You can work around your taxable income and have it reduced by write-offs or deductions.

Whether you itemize your deductions as you file your tax returns to earn a refund from the IRS or use the standard deduction provided by the government, your taxable income will be lower than your gross income. As a result, you pay less in taxes.

If you work with Accounting  & Tax Professionals in Grimes, IA, they’ll figure your taxes both ways and establish whether itemizing or taking the standard deduction route is more advisable. The experts tell you just which option will give you the biggest tax benefit.

Sounds good? Read on. There are more ways through which you can reduce your income tax losses.

Increase your retirement savings

There is a good reason why Accounting & Tax Professionals in Grimes, IA consistently recommends contributions to a retirement plan as a perfect way to reduce your tax bill. Money that you contribute to the plan is not included in your taxable income. Yet, the best way to reduce your income tax is by lowering your taxable income, which is the impact that such a contribution has on your income.

Most of the contributions you make to an Individual Retirement Arrangement are basically tax write-offs -depending on the type of plan- that require no itemization.

The money you contribute to an IRA is a pre-tax contribution and that is why it has a reducing effect on your total taxable income. You will eventually owe less in income taxes irrespective of whether you take the standard deduction route or itemize them.

This kind of an arrangement offers quality freedom from the income tax loss since the retirement plan simply accumulates your money to give to you eventually.

Accounting &  Tax Professionals in Grimes, IA reminds however that the traditional IRAs are not tax-exempt, but rather tax-deferred. You have to eventually pay tax presumably at the time of retirement.

Shift to a Roth program

You could alternatively opt for non-traditional IRAs like the Roth IRA. These could really lighten the burden although they do not soften the tax bill today.

This is an alternative you can choose if you are concerned about the possibility of your taxes skyrocketing at retirement. You can shift all or just part of your retirement plan contributions to a Roth IRA.

These Roth IRA plans are different from the regular retirement benefit plans since they don’t offer you a tax break. But the good news is the money that will eventually come out of the Roth upon retirement is be tax-free. The money you save on a regular IRA is often taxed under your top bracket. After

Seek a health tax break

Some employers offer a medical reimbursement account. If your place of employment has such a provision then be aggressive with it. Such a plan, sometimes referred to as a flex plan, let you divert a portion of your salary to an account that you can tap afterwards to pay medical bills.

With these arrangements, you are dodge both Social Security and income tax on the money. This means you can save up to 35 percent and above compared with using after-tax cash.

The fact that some of these tax matters look impossible does not mean they are actually impossible. You just need the counsel of someone who understands the topic well and you may learn something useful. For such help and more, make Accounting  & Tax Professionals in Grimes, IA your choice of a go to partner.

Jim McClaflin, EA, NTPI Fellow
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