Money makes the world go round. This is our driving force, our motivation to work endlessly in order to get our paychecks. But sometimes, working hard does not cut it. With so many expenses and bills to worry about, sometimes our hard earned money is not enough.
Did you know that fifty-five percent of Americans state that saving money is their number one financial goal for the year 2016? This is according to a survey conducted by Fidelity’s Financial Resolutions Study. On the contrary, Fidelity’s study revealed that only 20% of the people surveyed have answered that they look forward to pay tax debts. This shows that the priority of the majority is to save more.
One of the biggest reasons that keep us from saving is the existence of various taxes, such as taxes for basic necessities, education, home, health, work, and others. In this situation, there is a need to find different ways to cope for financial needs. This includes careful consideration of what steps can be done in order to keep profits and maximize tax saving options.
With that in mind, you may wonder what you can do to actually save money that you can use in the future. Do you want to learn how? This article will be your guide. A writer named David Searls has given a few tips on the best tax saving options you can use. He has given four tax saving steps that you can try out for yourself. In addition, we will also be discussing a few tax saving tips from an online article found on Fidelity’s website.
Owning a Home
Imagine having your own place to stay. This is one way of ensuring that you get the most from your money without spending too much on taxes. For many people, having home ownership is anyone’s American dream. Aside from the emotional rewards of having your own home, there are also a number of substantial federal tax benefits you can get. According to Sears, all annual points and loan interest expenditures totaling up to one million dollars on your main residence can be deductible, in addition to your property taxes.
If you have a vacation home’s under your ownership, then you are in luck. This can also receive a loan interest tax break on the condition that you stay in that second home fora minimum of 14 days in a year. If you decide to sell your home, you can get as high as $500,000 home profit which is free of tax. This isfor married peoplewho have filed jointly. Meanwhile, single filers are able to gain up until $250,000.
Donating to Charity
Do you have a cause you want to donate to? Giving to charity is a great means of decreasing tax burden. On the condition that you give funding to any qualified charity, the contribution you give may be completely deducted from your earned revenue. You can visit the Internal Revenue Service (IRS) to find out whether the charity to choose to donate to is qualified or not.
Sears stated that the costs you spend as a support to the organization you select may also be subtracted from the federal tax bill under your name. An example is your distance to and fro conferences or events. Another instance is the reasonable price of all the goods that you offer to any charitable auction. All of these are counted as legal exemptions.
Getting Savings from Retirement Accounts
Saving money for your retirement is very important since this gives financial security in the long run. But keep in mind that retirement funds are not only beneficial for the future, but they also have their benefits for the present. So if you want to gain money and reduce your taxes, then consider opening a retirement account now.
There are two types of individual retirement accounts (IRA), the traditional IRA and the Roth IRA. First, let us discuss about the traditional IRA. If you invest your money on a traditional fund, the tax is deferred. You will not face any type of taxation until your withdraw your money. Depositors who are under 50 years of age are able to pay as much as $17,000 per annum. For people who are above 50 years old can putan additional $5,500 in their account. This would be $22,500 all in all. The only time taxations occur is when you engage in withdrawals, regardless of the amount of other income source.
Another type of retirement account is the Roth IRA. Roth accounts have a different tax set-up in comparison to one traditional account. The Roth IRAs are a reversed version of the traditional IRA. In this type of account, taxation is present during the year you contribute, but any withdrawals you may plan to do are free of any taxation after you retire. By the age of 59 and a half, you are entitled to withdrawals from your retirement accounts.
Sears gave a precaution about withdrawals made. According to him, the possible drawback for both of these retirement accounts leads to an excessive 10% extra tax penalty. This taxation is applicable for any early withdrawals made. The fine given is different from any state or taxes to the government that are to be paid. This will depend on the kind of account you currently own, and if it is a Roth account, it will be dependent on whether you only took your contributions or withdrew parts of your earnings.
Owning Municipal Bonds
Essentially, a bond pertains to an “I owe you” document from a certain company or government body that requests to make use of your money in funding either a particular project or daily operations. In this case, having municipal bonds is a good plan if you intend to lower your tax costs and save more.
Municipal bonds that are given out by cities can fund a variety of local construction projects like new schools, roads, bridges, or other infrastructures, like a water treatment plant. For every project, the interest you earn on these bonds is free of taxes.
Sears said that the only compromise is the fact that municipal bonds usually pay a smaller amount than other sorts of bonds. In this case, you can seek help from a tax preparer or your accountant to guide you in making final decisions. They can assess whether municipal bonds that are free of tax fit in your personal portfolio. This will be based on your taxable revenue and financial plans.
Opening a Health Savings Account
Fidelity suggested that if you are working under company which offers a high-deductible health care plan (HDHP) together with a health savings account (HSA), then it would be wise to consider choosing the HDHP and getting an HSA.
Considering this option can be a tax-efficient means to save for current and future medical expenses, together with expenditures by the time you are retired. Also, numerous corporations pay for an employee’s HAS. Furthermore, employee contributions are made pre-tax, meaning your remaining post-tax expenses can be lessened. Also, if you will not be spending anything from in your HSA in one year, the unspent investment are accumulated and continue to pile up from year to year. The collected funds can be used on future medical expenses, which is inclusive of your retirement days.
Paying High-Interest Debt
This may sound counterproductive, but paying your debts with high interests is actually a good means of reducing further costs. As Fidelity suggests, if you have a credit card or other debt that you are paying for, then you should consider using your spare savings to pay your balances. If you have more than just a single account, then you should prioritize first on the account having the highest interest. Still, you must continue paying the minimum payments that is required on your other debts in order to avoid any other penalties. When the highest debt is taken care of, you should use your extra money on paying off the debt with the second highest interest rate. Keep on doing this until you finish paying all of your debts.
When you are able to settle and get rid of your high-interest debts, paying off the remaining debts should be easier to do next. Logically, this is possible because you will be paying lower interest costs for the other unsettled dues.
Investing on Other Savings Goals
Fidelity also stresses the importance of saving for other goals, such as education. They advise putting your money on certain savings like college for your children and grandchildren. You may also consider savings for graduate school. For these two accounts, if you do not engage in early withdrawal from these savings, then federal income is free of tax.
One of the best means to save for college is opening up a 529 college savings account. This is a tax-advantaged account which is intended to pay for higher education costs.
Participating in Tax Saving Options
If you are having problems in terms of financial aspects, then these options are for you. These efficient methods of tax deduction can help lift the burden of having to scavenge for extra income.
With the demands of the high costs of living, these tips on saving up and decreasing payment for tax bills are huge lifesavers.