Every April, you are required to fill out and submit a tax return to the federal government. You may also have to submit a tax return to a state tax authority as well. While the thought of giving money to the government may not be appealing, there are ways to limit the amount of tax that you owe.
Don’t Itemize If You Receive a Structured Settlement
If you don’t itemize the medical expenses related to a personal injury case, you don’t have to include structured settlement income on a tax return. A structured settlement is an agreement to receive a financial award over time as opposed to in a lump sum. In most cases, an insurance company will guarantee that the payments are made in accordance with the settlement’s terms.
Put Money Into a Retirement Account
In 2019, you can contribute up to $19,000 of wage income toward a 401(k) and another $6,000 toward an IRA. If you are over the age of 50, you can contribute an additional $6,000 to a 401(k) and an additional $1,000 to an IRA. It may also be possible to claim a retirement savings credit depending on your income and how much you contribute in a given tax year.
Deduct Your Business Expenses
If you are self-employed, you can reduce your taxable income by deducting reasonable and ordinary business expenses. These expenses may include contributions to a self-employed retirement account, the use of a vehicle for business purposes or any money that was spent on meals with clients. Those who operate their companies as small business corporations may be able to take owner distributions as opposed to wages. There is no need to pay FICA taxes on owner distributions.
Deduct Mortgage Interest and Property Taxes Paid
Owning a home can come with tax benefits if you choose to itemize your deductions. It may be possible to to deduct up to $10,000 of state and local property taxes, and you can also deduct interest on mortgages up to $750,000. That amount is cut in half if you are filing your tax returns jointly with a spouse.
Engaging in tax avoidance may provide you with the motivation needed to save for retirement or learn more about available business deductions. If you need help understanding how a financial decision could impact your tax return, don’t hesitate to talk with an attorney or other financial professional.