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6 Simple Strategies to Reduce Personal Federal Taxes Wednesday, February 5th, 6:55 PM
How to Reduce a Personal Federal Tax Bill: 6 Steps Anyone Can Take

Brandon, United States - February 5, 2020 / Accurate Tax & Bookkeeping Services /

Accurate Tax & Bookkeeping Services shares 6 strategies people can utilize to reduce their personal federal tax bill.

Early in the year is the best time to begin implementing strategies to reduce a personal federal tax bill. There are practical ways to make sure the IRS does not receive any more than it should. Accurate Tax & Bookkeeping Services, a full-service tax attorney in Brandon, FL, is revealing 6 strategies that anyone can use to reduce their tax bill.

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Step #1: Maximize retirement plan opportunities

As much as possible, put the maximum amount allowable into the employer-sponsored 401(k), 403(b) or other tax-deferred retirement account. Contributions to these accounts reduce taxable income for the year. At the same time, avoid if at all possible making an early withdrawal from a retirement plan. Taking money out of a 401(k) for non-essential spending comes with a sting at tax time. The distribution may be taxed as ordinary income, and the IRS typically penalizes another 10% if the money is withdrawn before the age of 59 ½. It may be possible to take out a loan on a 401(k). However, most 401(k) loans charge loan fees. Leaving one’s job before the loan is repaid could result in owing income tax and penalty fees at the end of the year.

Step #2: Utilize the gift-tax exemption

Taxpayers can reduce their estate by giving away a portion of their money. The gift-tax exclusion (at the end of 2019) is $15,000, but that amount can be given to as many recipients as desired without paying federal estate or gift taxes. Seek advice from a tax attorney or accounting firm before moving forward with this strategy.

Step #3: Maximize 529 education savings contributions

Both the contributor and the recipient can receive tax benefits when money is saved in a 529 plan to pay tuition and other educational expenses. The donor can invest the funds in a variety of investment vehicles, and the earnings are not subject to federal income tax. However, the contributions are considered a gift to the beneficiary, so they are subject to the $15,000 gift-tax exclusion.

Withdrawals by the beneficiary from a 529 plan are not subject to federal or state income taxes when the money is used for qualified higher education expenses. In addition to the federal tax benefits, more than thirty states offer a full or partial tax deduction or credit for 529 plan contributions. Rules differ from state to state, so check state laws.

Step #4: Bundle contributions

The federal tax overhaul, which passed in December 2017, nearly doubled the standard income tax deductions. The impact is that many taxpayers will not have enough expenses to exceed their standard deduction. But if more deductions are needed to exceed the standard deduction and lower taxable income even more, then try bundling contributions such as charity donations.

Match the total annual gift with a year-end lump sum for what would have been given the following year. If that amount is enough to exceed the standard deduction, start adding on other small, deductible expenses. For example, it is a good time of year to clean out the closet and donate clothes and other items to a nonprofit.

Step #5: Liquidate investments that are losing money

If investments in taxable accounts have lost more money than they earned, the losses can be deducted up to $3,000 a year to offset ordinary income. Any remaining losses can be carried forward to future tax years. This tax-deferral strategy is known as “tax-loss harvesting.”

Step #6: Defer a portion of income

It may be possible to reduce this year’s tax bill by deferring payment of a year-end bonus, for example, until early next year. Taxable income is generally not recognized when it is earned but when it is received.

It is also possible to defer income by taking any capital gains that may have been realized this year and pushing them into next year. Be careful that the deferred income does not elevate income to an even higher tax bracket next year.

There are a number of other strategies to reduce the personal federal tax liability, such as opening a flexible savings account (FSA) or converting to a Roth IRA. In any case, obtaining the advice of a tax professional is essential to avoid costly errors or missteps.

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For more information about tax preparation in Brandon, FL and to schedule a consultation, contact the office by phone at (813) 655-9702.

Contact Information:

Accurate Tax & Bookkeeping Services

710 Oakfield Dr Ste 125
Brandon, FL 33511
United States

Greg Menia
https://brandonaccountant.com

Original Source: https://brandonaccountant.com/press-releases

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