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They say it because it’s true: The only certain things in life are death and taxes.
While we’re still working on the whole immortality thing, we have found some ways to reduce that pesky bill from Uncle Sam each April after filing a tax return.
Don’t worry, we’re not talking about tax evasion, but there are some totally legit ways to keep more of your hard-earned dollars in your pocket.
It might be too late to make some of these moves for the 2021 tax season but think about making some changes soon for the 2022 tax season. One thing you can do now, though, is max out your contributions to a traditional IRA. You have until April 15, 2022, to do this for the ’21 filing.
Here’s several ways on how to save money on taxes for earnings that won’t get you in trouble with Uncle Sam come tax time.
1. Contribute to a 401(k)
Lowering your taxable income is one of the best ways to pay less in taxes. Less income earned means less money you pay to the government.
The easiest way to reduce your taxable income is to contribute to tax-deferred retirement accounts, like your company’s 401(k) plan or some other type of workplace retirement plan.
Money you contribute to a 401(k) is pre-tax money, so it doesn’t count toward your taxable income for the year you make the contribution, though you will be taxed when you make withdrawals later.
For 2022, you can contribute up to $20,500 for those under 50, and up to $27,000 those 50 and above. This doesn’t include the amount your employer contributes to your plan.
2. Contribute to a Traditional IRA
Just like that company-sponsored retirement plan we were talking about, the funds you contribute to your Traditional IRA don’t count toward your taxable income.
This type of retirement account is different to a Roth IRA, where contributions are taxed today but then grow tax-free thereafter.
For 2022, you can contribute up to $6,000 to an IRA, or $7,000 if you’re over the age of 50.
You…
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