Alexandria’s individual taxpayers pay several taxes on local, state, and federal levels without knowing that they can reduce their taxes further and save a substantial amount of money. However, tax optimization requires adequate knowledge of various tax laws and regulations. Therefore, hiring a CPA in Alexandria, Louisiana, can provide you with the professional expertise to reduce your tax return.
Nonetheless, you may still require basic knowledge of the prevalent tax-saving strategies to understand an expert’s suggestions.
Exploring different federal tax brackets
Based on their annual earnings, individuals in the US pay a certain percentage of their income towards federal taxes.
- Individuals earning up to $11,600 pay 10% towards taxes.
- Those earning more than $11,600 and up to $47,150 pay 12% towards taxes.
- People earning between $47,150 and $100,525 pay 22% tax.
- Individuals earning between $100,525 and $191,950 pay 24% tax.
- Those earning over $191,950, up to $243,725, pay 32% tax.
- Those earning between $243,725 and $609,350 pay 35% tax.
- Those earning over $609,350 have to pay 37% tax.
Top tax savings strategies to adopt now
Paying taxes is mandatory. However, you can save a substantial part of your taxes with efficient tax planning and smart deductions. Here are some strategies that you can employ to save taxes:
Increase your contributions to your retirement account.
You can contribute up to $7,000 to an individual retirement account (IRA) or $8,000 if you are over 50. Depending on the type of your IRA, either the contributions or withdrawals may be tax-deferred. For example, your contributions to a traditional IRA are tax-deductible, whereas your withdrawals are tax-free in a Roth IRA.
Utilize your tax deductions and tax credits.
You can opt for either a standard deduction or itemized deductions to reduce your taxable income. Itemized deductions require evidence of deductions, while standard deductions do not. However, the limit of standard deductions is lower than that of the itemized deductions. You can also use your tax credits to reduce the amount of taxes you owe.
Consider contributing to a 529 account.
Contributions to a 529 college savings plan can also help you reduce your taxable income. You can contribute up to $18,000 per beneficiary each year. However, it is pertinent to mention that your contributions are considered gifts, and they may attract gift taxes.
A health savings account (HSA)
To reduce your taxable income, you can contribute up to $4,150 for self-coverage and $8,300 for family coverage to health savings accounts. Individuals over 55 can save an additional $1,000.
A flexible spending account (FSA)
Flexible spending account funds can be used for several medical benefits. You can contribute $3,200 each year to an FSA and reduce your taxable income for the given year.
