Get Ready for Tax Day With Expert Advice on Maximizing Refunds and Minimizing Liabilities
Taxpayers nationwide are gearing up for Tax Day, with the April 15 deadline fast approaching. Whether individuals have already filed their taxes or are waiting till the last minute, minimizing tax liability or aiming for a refund remains a top priority. According to the IRS, the average refund amount as of March 29, 2024, stands at $3,050. While a significant number of taxpayers have chosen to e-file their returns, many have opted for professional assistance to navigate the complexities of the tax system. For those dissatisfied with their current tax outcome, seeking the expertise of a tax professional may prove beneficial. Stay tuned for expert insights and practical advice to help taxpayers make informed decisions and secure greater financial stability in the next tax season.
1. Consider boosting pre-tax retirement contributions to lower tax liability
Daniel Masuda Lehrman, a certified financial planner (CFP) and owner of Masuda Lehrman Wealth LLC advises taxpayers who find themselves paying more taxes than desired to consider increasing their pre-tax retirement contributions, per GOBankingRates. This can be achieved by contributing to an employer-sponsored 401(k) plan. Contributing to a 401(k) allows individuals to reduce their taxable income by allocating portions of their pay to a retirement account on a pre-tax basis. Besides potentially growing over time to fund retirement, these contributions can effectively lower the tax bill in the following year.
2. Maximize tax savings with a Health Savings Account (HSA)
Philip Wentworth, Jr., co-founder of Rockerbox Tax Solutions, emphasizes the benefits of utilizing health savings accounts (HSAs) to enhance one's tax position. For individuals enrolled in high-deductible health plans, contributing to an HSA offers triple advantages: contributions are tax-deductible, account growth is tax-free, and withdrawals for qualified medical expenses remain tax-exempt. Beyond reducing taxable income, Wentworth highlights that leveraging HSAs also establishes a financial safety net for healthcare expenses. Advising clients on maximizing HSA contributions has consistently resulted in significant tax savings and bolstered financial resilience, he noted.
3. Optimize cash flow by adjusting tax withholdings
Philip Wentworth, Jr., highlights the importance of accurately adjusting tax withholdings to avoid either overestimating or underestimating tax liabilities. By carefully projecting yearly tax obligations and making necessary adjustments to withholdings, clients can effectively manage their cash flow throughout the year. Wentworth emphasizes that getting tax withholdings right significantly impacts financial situations, allowing for more accurate budgeting and preventing unexpected tax bills during filing season. Through tailored strategies like these, Rockerbox Tax Solutions aims to enhance clients' financial well-being and tax efficiency.
4. Tax savings through claiming tax credits and recording deductible expenses
James Strong, an accountant and financial enhancement specialist, underscores the importance of utilizing available tax credits to reduce tax liabilities. He emphasizes that leveraging tax credits is a straightforward approach to retaining more income. "Exploring various tax credits offered by the IRS can substantially influence your overall tax situation," Strong advises. Whether it's the Earned Income Tax Credit for employed individuals, the Child Tax Credit for parents, or education credits for students, taking advantage of these options can lead to significant tax savings. Additionally, other tax credits such as those for retirement savings, investments in eco-friendly vehicles or home energy, purchasing health insurance via the marketplace, and personal tax credits like taxes paid overseas can further contribute to reducing tax burdens. By exploring and maximizing these tax credits, taxpayers can optimize their tax savings and improve their financial outlook. "Maintaining a record of deductible expenses ensures that you maximize your tax deductions come tax time," Strong emphasizes. In addition to charitable contributions and medical bills, other deductible expenses include alimony payments, contributions to an IRA, penalties for early savings withdrawals, student loan interest, and teacher expenses. By meticulously documenting deductible expenses, taxpayers can leverage these deductions to their advantage, ultimately minimizing their tax burden and maximizing their tax savings.
