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Taking time to reduce your tax liability can be beneficial

On Behalf of | Jun 12, 2022 | Tax Planning

Eliminating the amount of taxes that you pay in New York can be advantageous to your bottom line. Understanding how to decrease your tax liability begins by knowing the deductions and tax credits you can take.

Increasing retirement contributions

One way to minimize your tax liability is by contributing to a traditional IRA or employer-sponsored retirement plan. In 2019, the U.S. government made it easier to make these contributions. They eliminated the age restriction for contributing to a traditional IRA, allowing you to contribute to your account indefinitely. This change makes it easier to take advantage of tax laws minimizing the amount you pay to the IRS.

Benefit from investment losses

While you don’t want to make a goal of creating investment losses in your accounts, using the losses that you’ve already had can help reduce your tax liability. However, the IRS has specific limits for the losses that can be claimed.

Making tax-deductible donations to charity

Understanding how much you can deduct from your adjusted gross income via charitable donations is essential to tax planning. You’ll need to fill out and file a Schedule A and add it to your completed tax return. While itemizing can take more time, it may be cost-effective if you save enough on your taxes. It may also be worth taking tax deductions for volunteering as expenses related to volunteering for a qualified organization can be tax-deductible donations.

Contributing to employer-sponsored plans can reduce your taxable income

Another way to reduce your taxable income is by contributing to traditional 401(k) or 403(b) plans. Getting assistance from a professional may be required to ensure you don’t exceed the limits and to help you understand the IRS regulations involved.

When you take the time to minimize your tax liability, you’ll have more money to use as you like.

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