We are surrounded with a few mundane tasks that we must carry out, irrespective of we like them or not. Tax planning is a prime example of the same. though it is mundane and even borderline boring, it must be done. However, there is an upside to it. If you successfully plan your taxes, you can save a considerable amount of money. If that isn’t a good enough reason to plan for your taxes, nothing else will.
But where do you start from and how do you plan your taxes? To make matters easy for you, here are the top 3 tips by which you can save money on taxes this summer. If you do not want to pay extra to Uncle Sam, the following tips are for you.
Health Savings Account (HSA)
If your employer offers any health insurance plan, you can combine your health savings account along with it. In the event that your employer does not offer any health insurance plans, you can buy a health savings account on your own. The money that you put into a health savings account is pre-tax. You can then use the amount for various expenses such as medical bill for procedures, co-payment, deductibles and even certain expenses that are not covered as a part of medical insurance such as dental care or vision.
Your contributions towards HSA has several tax benefits. For starters, it is deducted pre-tax, the amount that you contribute is non-taxable. The amount that you invest then keeps on growing tax-deferred. And lastly, when you do withdraw the amount it is tax-free.
Flexible Savings Account
A flexile savings account is another smart way of handling your taxes. On the surface, it resembles the Health Savings Account to a great extent. The major difference being, that a flexible savings account is sponsored by employers only for healthcare plans. Per year, you can invest as much as $2,250 pre-tax. You can then use the amount for taking care of expenses such as deductibles. And, you do not have to pay anything on the $2,250, no state taxes or no federal taxes.
Unlike the HSA, you do not get the amount directly. And you must spend the amount by the end of the year. If you fail to do so, the amount will revert to your employer. Though, some companies now offer grace periods where you can use the funds. And in some cases, you can carry forward up to $550 for the next year.
When it comes to charitable donations, there aren’t a lot of restrictions. If you wish to donate a significant amount of money to charity, you can consider giving away your stocks or even mutual funds. Specifically, the ones that you have had with yourself for at least a year. Should you consider this option seriously, it is recommended to give away the stocks or mutual funds that are in the green or yielding profit. Charitable donations always consider the fair market value on the day of donation and not at which it was bought. This will boost your donations considerably. This will allow you to quietly walk away without having to pay taxes on your profits. To make the most of this method, you would have to itemize your deductions. But if your stocks or mutual funds are in loss, it is better to sell them off, claim the loses and donate separately.
The above methods will help you save money on taxes considerably. Which you can then spend on doing whatever you wish or invest for better returns in the future.