Although we’d all love to get a pass or break on paying taxes, there is no avoiding Uncle Sam.
But, there are ways that you can plan for tax season that doesn’t leave you feeling like the IRS has robbed you blind.
Do you feel like the taxes you owe keep on going up year after year? Many people feel that way, and it could mean that you might have to pay attention the following tips.
Read on for a few key tax strategies that you can use if you’re tired of being taken to the cleaners by the IRS.
1. Save in a Tax-Advantaged Retirement Plan
Many people seem to think that it’s impossible to save money on taxes simply because they do not itemize.
That’s not necessarily the case.
Whether you opt to take the standard deduction or not, there is one tax break that you cannot afford to give up: retirement plan contributions.
When you put money into a traditional IRA or a 401(k), the money you are contributing to the plan is tax free. Your associated savings therefore are part of your tax rate.
If you are a worker under the age of 50, you can contribute up to $5,500 to your IRA an up to $18,500 to a 401(k).
Meanwhile, if you are over 50, those limits go up to $6,500 for an IRA and $24,500 for a 401(k).
Not bad, right?
Now, not everyone has the cash to max out an IRA, but even if that is the case, putting savings into either type of plan is a good idea and a solid way to quickly cut down your tax bill.
2. Rethink the Way You Sell Investments
Everyone can agree that the ultimate goal for investing to make money. Unfortunately, the profits that you make from investments are not strictly yours to claim.
Many people aren’t aware of the fact that if you choose to invest in a traditional (non-retirement) brokerage account and then sell the investments at a price tag that is higher than what you first paid, you are then responsible for capital gains taxes.
The good news is that if you sell your investments wisely, you can lower those capital gains taxes.
It’s important to know that if your investment duration is longer than a year and a day before selling at a profit, you are automatically putting yourself in something called a long-term capital gains category.
Long-term capital gains is the category you do want to be in because those gains are taxed at a lower rate than short-term gains.
Short-term gains, which you may have already guessed, are those investments held for a year or less before they are sold.