Like retirement plans, there are additional education and healthcare related plans that may help you lower your taxable income.
529 Education Savings Plans
529 plans are operated by a state or educational institution and offer tax advantages and potential incentives. These plans make it easier to save for college for a designated beneficiary, such as a child or grandchild. When used for qualified education expenses, earnings are not subject to federal tax and are generally not subject to state tax. Your contributions are limited to the amount necessary to provide for the qualified education expenses of the beneficiary. This will be different based on the circumstances of your family. Be aware, though, that contributions to 529 plans are considered gifts. If you give more than $14,000 to any one beneficiary, you may have to file a gift tax return.
Health Savings Accounts (HSAs)
Is your health insurance a High Deductible Health Plan (HDHP)? If so, you are likely able to contribute to an HSA. An HSA is a tax-exempt trust or custodial account that is set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. There are several tax benefits to contributing to this type of plan. For example, you can claim a tax deduction for contributions you or someone other than your employer make to your HSA, even if you don’t itemize your deductions. Additionally, contributions to your HSA made by your employer may be excluded from your gross income. The account grows tax free, and distributions for qualified medical expenses are exempt from income taxes as well.
There are certain qualifications you must meet to open one of these accounts, as well as yearly contribution limits.
There Are Countless Ways to Save!
Making contributions to the accounts above are just a few ways to lower your taxable income. Other methods that may potentially lower the income that’s reported on your return include giving to a charity, paying your property tax bill early and making energy-efficient upgrades to your house.
If you need help determining the best way to reduce your income, call our office to make an appointment.