Tax laws are constantly evolving, which can result in sudden increases in your tax bills. If you don’t pay attention to current tax changes and how they impact your finances, you may find yourself giving the state and federal government more of your earnings than you anticipated. The good news is that working with a skilled financial advisor in Burlington, MA, can help you learn how to lower your taxes while complying with regulations.
Finding ways to reduce your tax bill doesn’t have to be a daunting experience. Here, we provide effective tax reduction methods to consider.
Essential Tax Saving Tips for Individuals
Every year, people pay a portion of their earnings toward various taxes, including property, state, local, federal, and sales taxes. These payments build up quickly.
So, is there any way to cut down how much you owe? Below, we explain how to cut down on tax payments in 10 simple tips.
1. Request Your Property Tax Card
If you own property in Massachusetts, you’ll have to pay taxes on it. The tax rate and your property’s current market value determine how much you must pay.
To ensure an accurate rate, you should review your property tax card. The card comes from the local assessor’s office and displays information that the community has collected about your property. Details include the lot size, the dimensions of each room, and the type of fixtures the home contains.
If you notice discrepancies with the information on your property tax card, you can file a dispute with the tax assessor. Mistakes require immediate correction.
2. Take Advantage of the State’s Earned Income Tax Credit
As a Massachusetts resident, you may qualify for the state’s earned income tax credit. The EITC helps reduce the tax bill for residents with low or moderate earned income.
To be eligible for the credit, you must meet the following criteria:
- Have residency in the United States for more than half of the taxable year
- Have a qualifying child in the taxable year
- You or your spouse is between the ages of 25 and 65 before the end of the taxable year
- You were not a dependent on somebody’s taxes during the tax year
3. Contribute to Your Retirement Accounts
You shouldn’t overlook your retirement accounts when learning how to lower your taxes. The most common retirement savings option is the company-sponsored 401(k) plan, which people typically receive from their employers. Individual Retirement Accounts (“IRAs”) are also another good option for lowering tax bills.
With traditional IRAs, your contributions will go into the account before being taxed, which lowers your taxable income. You won’t pay taxes until you withdraw the money.
Roth IRAs require upfront tax payments. Although this method doesn’t lower tax bills, its distributions are tax-free.
4. Consider Offsetting Investment Gains With Recent Losses
Did you have well-performing stocks in the previous year? If so, it may trigger federal capital gains taxes. However, you may offset those gains with losses from other investments within you portfolio.
This technique is called tax-loss harvesting. Through it, you can sell underperforming assets that you weren’t going to keep and invest their proceeds in other assets. While it may help lower your tax bill, loss harvesting isn’t ideal for every situation and is best for meeting long-term investment goals.
5. Avoid Changing or Building on Your Property
When learning how to lower your taxes, it may be surprising to discover that making structural changes to your home can increase your tax bills. Property changes include any permanent fixture you add to your home’s interior or exterior, such as a garden shed or swimming pool. If the fixture can increase the home’s value, it can raise your tax bill.
Before starting a major home improvement project, research how much your proposed home addition could increase your taxes. This information can help you plan your budget and minimize your tax liability.
6. Consider the Community Investment Tax Credit
The community investment tax credit is something you can take advantage of as a Massachusetts resident. It applies to all taxpayers who contribute to community development corporations, which invest in projects designed to enhance economic opportunities for low-income residents.
To become eligible to use the CITC as an individual taxpayer, you must make a minimum donation of $1,000 to a CDC. The Executive Office of Housing and Livable Communities regulates the eligibility for this tax credit and its yearly cap amount, which is currently $12,000,000.
7. Make Charitable Contributions
One of the top strategies to lower taxes is to make charitable contributions throughout the tax year.
A “” allows individuals to donate appreciated securities (e.g. stocks) and receive a tax deduction in the year in which the donation was made. The donor can then write checks to their preferred charities in the years following the original donation.
A “Qualified Charitable Distribution” allows individuals (70.5 years and older) to make charitable contributions directly out of their IRAs and satisfy regulatory “required minimum distributions” requirements while doing so.
It’s important to remember that your donations will only qualify for tax deductions if the organization you donate to is a qualified nonprofit. Additionally, the time you spend volunteering isn’t tax-deductible, but any expenses you incur while volunteering may qualify.
8. Keep Track of Your Out-of-State Work
Many people work remotely these days, which enables employees to work with employers outside of their state. However, working remotely in a state that differs from your employer’s location may change your tax obligations. Some areas will consider remote employees working within their states to be residents after 183 days, which results in the state taxing their total income.
You can avoid potential tax penalties if you work remotely by keeping track of your different work locations. Connecting with a tax advisor about current state tax rules in your home state, the state where you work remotely, and the location of your employer is helpful.
9. Appeal Your Property Tax Bill
If you get an assessment of your home by a tax assessor but don’t like the results, you can file an appeal. The appeal would necessitate another review of your case, which may require the legal help of an attorney, both of which would incur a fee.
The attorney can help you document your home’s current condition for an in-depth comparison with the most recent assessment and your tax bill. If you win the appeal, you may get a lower home assessment value, which can help decrease your tax bill.
10. Maximize Your Business Expenses
Are you self-employed or a business owner? If so, writing off your tax-deductible business expenses can help you save. Standard business tax deductions include:
- Home office expenses
- Rent for office space
- Inventory
- Maintenance for a business vehicle
The more you can write off, the lower your self-employment tax will be. Claiming these deductions can also lower your income taxes.
Get Personalized Strategies To Lower Taxes From a Financial Advisor
Learning how to lower your taxes can help you retain more of your yearly earnings, which can help you stabilize your finances. If you need more guidance on how to cut down on tax payments, turn to Greenway Financial Advisors LLC in Burlington, Massachusetts.
Our knowledgeable practitioners assist with everything from tax strategies for individuals and families to tax-efficient retirement planning for seniors. We have decades of personal finances & tax planning experience, which we use to help our clients improve their current and future financial situations. To request a consultation, contact Greenway Financial Advisors LLC at (339) 234-9098.
Written Content Disclosures:
The information presented in this written communication is the opinion of the author and does not reflect the views of any other person or entity unless specified. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. The information provided is for informational purposes and should not be construed as advice. Advisory services offered through Greenway Financial Advisors LLC, an investment adviser registered with the states of California, Massachusetts & New Hampshire.
Recorded Presentation Disclosure:
Information presented was believed to be factual and up-to-date as of the date of recording, but no guarantee is made to its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the subjects presented.
Advisory services offered through Greenway Financial Advisors LLC, an investment adviser registered with the states of California, Massachusetts & New Hampshire. For disclosure information please visit: https://adviserinfo.sec.gov/
