This is part 2 of maximizing your tax breaks.

Another way to lower your taxable income is to set up an HSA (Health Savings Account). In order to qualify for an HSA, you need a high-deductible health insurance plan. These are often set up by employers. But individuals can set one up for themselves if they’re self-employed or their employer doesn’t offer one. The benefits of having an HSA are numerous. The contributions are tax-deductible. The earnings grow tax-free. You can carry your contributions over from year to year. You can take your HSA from employer to employer. And, any money that you withdraw to pay medical expenses is tax-free. 

You can also contribute to an FSA (Flexible Spending Account). Just like an HSA, FSA’s contributions are tax-deductible and are used for medical expenses. The drawback is that you have to use all your contributions up during the year. And you can’t carry over your contributions to subsequent years.

Use Tax Credits when possible. Credits include Earned Income Tax Credits (EITC), Child Tax Credits, American Opportunity & Lifetime Learning Credits for education expenses, Energy Efficiency Credits used for home improvements and Electric Vehicle Tax Credits.

If you happen to be self-employed, there are extra deductions such as Home Office deductions, businesses expenses (supplies, software, phone, etc.), mileage for your vehicle, SEP IRA or Solo 401(k) (SEP IRA is a Simplified Employee Pension) and Solo IRA mentioned above). Remember to keep copious records in case you get audited. Finally, there is something called a Qualified Business Income Deduction for those of you who are self-employed. What that allows you to do is to deduct up to 20% of your qualified business income on your taxes. I recommend you review the information on the IRS website regarding this topic.

Moral of the story:

It’s never too soon to start thinking about maximizing your tax benefits. If you haven’t considered any of the strategies I have mentioned, then perhaps it’s time to start. If what I have discussed boggles your mind, then maybe it’s time to seek the services of a CPA.