The year 2020 has been a tough year for businesses and individuals. Many people have gone through a financial crisis due to loss of stable income and other reasons. People are finding ways to save money such as taking advantage of coupon codes, cutting down their costs, and creating a strict budget.
Another year has passed, and it means that the tax filing season is just around the corner. Now that the IRS is about to begin, you’ve probably started preparing your expenses and the required documents. Since the pandemic is not going away soon, you can try some of these ways to reduce your tax bill during COVID-19.
Here are some of them:
Start planning early.
One way you can do to make way for reductions is to plan it out properly and as early as possible. The first thing you should think of is your estimated taxable income for the coming year. Kindly take note of all of income, freelance gigs, and other payments that will arrive later on. This will help you determine if there are deductions that you can itemize.
If there are any, make sure that you fill all your medical expenses for hospitalization or dental appointment. Keep all the receipts as you can eliminate around 7 percent of your adjusted gross income in the current tax year.
Remember that don’t wait until the deadline to start preparing all your files and run out of time. Successful planning comes with early planning, and you surely don’t want to miss any chance to lower down your tax bill.
Raise your contributions for your retirement fund.
Having a retirement fund will help ensure your financial security in the future, especially if something unexpected happens. One of the ways to lower down your tax bill is to ramp up your contributions for your tax-deferred retirement account. What type do you have? Is it employer-sponsored 401(k), 403(b), or other account?
You have to take note of the contribution limits each year. You can have a talk with your human resource department to start increasing your contribution.
Get a flexible spending account (or FSA).
Another great way to reduce your tax bill during COVID-19 is by opting to sign up for a flexible spending account (or FSA) which gives you the opportunity to make contributions for medical expenses without tax charges. However, what you should be mindful of is that your contributions should be used during the current tax year or else everything would be lost.
Make a donation.
Have made cash or even in-kind donations this tax year? If you’re not aware of it, charitable donations can be deducted from your tax bill. Donating to a bona fide charity and getting a receipt or proof can help reduce your tax. Whether your in-kind donations are old clothes, household items, or other objects, anything is acceptable.
Now, start to list down all the stuff you have donated this tax year, so you can check each amount of item and deduct them from your bill.