Tax Strategies & Credits

5 Ways to Boost Your Wealth While Cutting Your Taxes

by
Lee Reams II
on
11/16/2015
5 Ways to Boost Your Wealth While Cutting Your Taxes

Little is certain beyond death and taxes. But, there are a few strategies you can employ that reduce your tax burden while helping you grow your net worth. Not every strategy on this list will apply to every taxpayer, but there's at least one here you can put into effect to cut your bill and increase your savings this year:

  1. Contribute to your HSA.

If you have an HSA-compatible health insurance plan, there are advantages to maxing out your contribution each year. Individuals can contribute up to $3,350 (single) and $6,650 (family) in 2015. HSA holders 55 and older can save an extra $1,000 which means $4,350 for an individual and $7,650 for a family. Unlike FSA contributions, which expire if they are not spent by the end of the year, HSA contributions are yours to keep. They can be withdrawn tax-free if they are used for an eligible medical expense, or saved indefinitely to offset out of pocket medical expenses in retirement. And, they are added pre-tax, which means they reduce your taxable income each year.

  1. Take advantage of the Savers Credit.

Single people who earn up to $30,000 and married people filing jointly who earn up to $60,000 can get a boost in their savings when they contribute to a 401K, IRA or other qualified retirement account and take the Savers Credit when they file their taxes. The credit is up to $1000 for an individual and $2000 for a couple. This is easy money and a guaranteed return on your investment, no matter what happens in the market. Contributions can be made up to April 15, 2016. Please note you can only claim the Savers Credit if you use form 1040A, 1040 or 1040NR to file your federal tax return.

  1. Establish a SEP-IRA.

If you are self-employed or own a small business, a Simplified Employee Pension Individual Retirement Arrangement (SEP-IRA) is a good option. These are retirement accounts that you can create for yourself and for your employees. The employer is allowed to make tax deductible contributions. For solopreneurs, it has some advantages over a Traditional or Roth IRA. For instance, you can keep making contributions up to age 70 1/2, instead of the 59 1/2 age limit on other IRA accounts.

  1. Sell losing stocks, then (after a cooling period) buy them back.

Selling stocks at a loss can help you reduce your capital gains taxes. But, sometimes it can hurt to give up on a stock that you believe in. If the stock is one you think will rally again, you can buy it back after a cooling period and still enjoy the tax benefit of the capital loss. The "wash sale" restrictions include a 61-day period that starts 30 days before the sale and ends 30 days after it.

  1. Invest in a 529 plan.

Have a child to put through college? In 34 states, your contributions to a 529 college investment account can net you a deduction on your state taxes. Once they are in the account, your 529 contributions grow tax-free. And, if your kid gets a scholarship? You are able to withdraw the money that the scholarship is replacing without paying a penalty. If your child opts not to go to college, you can leave 529 funds in the account for another college student, such as a niece, nephew or grandchild.

It takes careful planning, a bit of free capital and an eye for rules and details to benefit from many of these tips. But, by picking investments and strategies well, you can make your tax bill drop lower while your personal balance sheet totals go up.

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Lee Reams II

Lee Reams II

CEO

I am a tax and business news junkie who has spent the last 20 years developing and executing "best in class" word-of-mouth marketing campaigns for tax and accounting professionals. With TaxBuzz and CountingWorks we have taken that same commitment to quality content directly to the consumer. Keeping you up-to-date with the latest tax law changes, business growth tips and planning strategies to help you reach your best financial outcome.

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