Here Are 5 Ways to Keep More Money in Your Pocket
Reducing your Adjusted Gross Income (AGI) can be a smart strategy to lower your tax bill, as your AGI serves as the starting point for calculating your taxable income. Here are five quick ways to do that:
1. **Employer-Sponsored Retirement Plans:** Contributing to an employer-sponsored retirement plan, such as a 401(k), can significantly reduce your AGI. The money you contribute is deducted from your income before taxes are applied, so it effectively lowers your taxable income. For example, if your AGI is $50,000 and you contribute $5,000 to your 401(k), your AGI is reduced to $45,000 for tax purposes.
2. **IRAs (Individual Retirement Accounts):** Contributions to traditional IRAs are also tax-deductible and can reduce your AGI. For example, if you're eligible to deduct the full amount of your IRA contribution, contributing $6,000 to your IRA can lower your AGI by $6,000 if you're under 50 or $7,000 if you're 50 or older (catch-up contribution).
3. **HSAs (Health Savings Accounts):** If you have a high-deductible health insurance plan, contributing to an HSA can lower your AGI. HSA contributions are tax-deductible, and the money can be used tax-free for qualified medical expenses. Reducing your AGI through HSA contributions can also result in lower income taxes.
4. **Health Coverage and Premiums:** Premiums for certain health insurance plans, like those offered through the Health Insurance Marketplace, may be partially tax-deductible if your AGI is within a specific income range. Claiming this deduction can reduce your AGI, making it an effective way to lower your tax bill.
5. **Self-Employment Tax Deduction:** If you're self-employed, you can deduct the employer portion of your self-employment tax (the equivalent of Social Security and Medicare taxes paid by employees). This deduction directly reduces your AGI, helping to lower your taxable income. Additionally, self-employed individuals can deduct business expenses, which can also contribute to lowering their AGI.
By taking advantage of these strategies, you can effectively reduce your AGI, which in turn lowers your taxable income and potentially places you in a lower tax bracket. This can lead to significant tax savings, helping you keep more of your hard-earned money and plan for a more secure financial future. However, tax laws are complex, so it's advisable to consult with a tax professional or financial advisor to ensure you make the most of these opportunities while staying compliant with current tax regulations.
