Costs are constantly rising in all areas of life. This includes everything from grocery bills to housing prices. Although your income increases may not match the rising cost of living, there are ways to make sure that you maximize all the possible deductions at the end of the tax year to which you’re entitled. Some law-abiding tax payers take the most obvious deductions, but you shouldn’t miss out on the ones to which you’re legally entitled. You don’t have to pull the wool over the eyes of Uncle Sam to take all the deductions that you’ve been missing. Here are three tips to claim back certain types of income at the end of the tax year.
Deducting a Home Office for Freelancers
When you’re a freelancer, you can always deduct a home office if you have one. Be careful with this deduction, though, and make sure that you have a home office that legitimately meets all the IRS requirements. They’re very particular about what constitutes a tax deductible office, including use of the room and square footage. If you get audited, this can be a messy thing to explain if you fudged your tax return. On the other hand, if you have a discrete room in your home that you use solely for your work, don’t be afraid to take this deduction. It was made for people like you. You can save a lot of money on your taxes as a freelancer in other ways, but the home office is a big one.
Max out Your FSA or HRA Benefits
One of the best and most useful ways to lower your tax bracket is to max our your FSA or HRA benefits for healthcare. There’s a cap on how much you can contribute to this fund, but it’s pre-tax, so it lowers your gross income. The difference, though, between funneling money away into a distant fund such as a retirement plan, is that you see the results of this money directly. If you have medical expenses during the year, the FSA or HRA will ensure that you don’t get stuck with a massive bill. A good rule of thumb is to deduct the amount from your paycheck that covers your deductible, if you have one. Therefore, you can use your FSA or HRA to pay the deductible, and then often your insurance provider will cover any other fees. It’s like a safety blanket for your health, and can come in handy. You can also use it for other things, like non-routine procedures or out of network doctors. Be careful, though, because there are also lots of things that aren’t covered by FSA or HRA funds. You can find all of this information on the IRS website, though. Always double check to see eligibility. At the same time, you should also contact your insurance provider to understand fully what is covered after your deductible is met.
Max out Your Retirement Plan Contribution
Although it will cut into your take home pay, maxing out your retirement plan contribution is a great way to lower your tax bracket. Be careful that your retirement plan is pre-tax and deductible, though. The other upside of maxing out your retirement plan contribution is the fact that, many times, your company will match your contribution to a certain point. Check in with your human resources department to find out how much you could potentially be saving for your future.