This is the time of year when we are preparing our tax return, and freak out when we owe taxes! I want you to stress less and reduce how much you owe in taxes. How? I have the perfect solution for you. Pay yourself and reap the benefits!
I’m going to share four ways you can reduce your taxes.
FIRST: Save for retirement by funding your IRA/Spousal IRA. You have until the day you file your income tax return to fund your IRA. For 2022 you can save $6,000 ($7,000 if 50 or older) per person.
So many of us women are behind when it comes to our retirement savings. Why? We take time off to be a mom, change careers, take care of our folks, etc. And we get paid less than men, 82 cents/dollar 🙁
The important point is to SAVE something for retirement, even if it’s just $25.00/week. The sooner you start saving the better, because you have time and compounding growth on your side. Getting started is the hard part. You can increase it over time. And make it easy and painless by making it automatic.
SECOND: Contribute to a 401(k) retirement plan provided by your employer. Your 401(k) contributions had to be done by 12/31. So make sure you’ve got your contribution set up to auto deduct from your paycheck now to take advantage of your employer’s match for 2023. Your maximum contribution for 2023 is $22,500 and additional $7,500 for anyone age 50 or older.
I often get asked, but how much should I save for retirement? The general rule is to save 15% of your earnings for retirement. Here are some savings guidelines:
- Age 30 = 1X Annual Income
- Age 40 = 3X Annual Income
- Age 50 = 6X Annual Income
- Age 60 = 8X Annual Income
- Retirement = 10X Annual Income
So if you’re earning $75,000/year, by age 40 your goal is to have $225,000 in your retirement account, and $750,000 saved when you retire.
Now there’s more to determining if that’s the right “number” for you, but these are guidelines to get you started on your way to planning your financial freedom!
THIRD: Fund your HSA (health savings account). The annual limit on HSA contributions for 2022 are $3,650 for individuals and $7,300 for family coverage. Those 55 and older can contribute an additional $1,000 as a catch-up contribution. The deadline for individuals to make HSA contributions for their 2022 tax return is April 18, 2023. The tax benefits are so good that some financial planners say to max out your HSA before contributing to an IRA. Here’s why: You don’t pay any taxes upon withdrawal as long as you use the money to pay qualified medical expenses or qualified health insurance premiums if you’re over the age of 65.
FOURTH: Claim your tax credits. Many people don’t claim all of their tax credits because these change from year-to-year, depending on your situation. But definitely try taking advantage of these credits as they directly lower your taxes dollar for dollar. Some to consider are:
- Earned Income Credit
- American Opportunity Credit
- Lifetime Learning Credit
- Saver’s Credit
- ABLE Credit
- Child & Dependent Care Credit
- Residential Clean Energy Credit
When you’re filing your taxes, remember to pay yourself first, not the IRS!
If you want more information on how to save for retirement, schedule your free 20 minute call.