Whether you’re a small business owner or you’re an individual who works for a company and/or organization, there’re two thing that you absolutely cannot avoid in life: death and taxes. While some people find themselves strapped for cash and get behind on the taxes they owe to the IRS, they could very well find themselves having to endure the pain of a tax audit.
Says Traxion, a company that specializes in tax resolution services, lots of small businesses and individuals are mandated to undergo a tax audit at some point in their professional lives. This can be a very nerve wracking and anxious time. Certain determinations made by the tax authorities might end up failing to consider critical information or even tax breaks you are entitled to if you do not arm yourself with the proper representation during the audit procedure.
This brings up a bigger point altogether. As an individual or small business owner (even a gig worker or a freelancer such as a writer or landscaper), you need to be keenly aware not only of the taxes you owe, but also the tax breaks you deserve and that can lessen the load on your tax bill come mid-April.
According to a recent article, maybe you worry about the annual April tax deadline because the refund you expect won’t even pay for the postage stamp required for mailing your tax return. Or perhaps you don’t have enough cash lying around to pay an unexpectedly large tax bill. If that’s the case, then you can relieve your worries by examining the following tax tips that can reduce your tax burden and perhaps even turn your bill into a nice refund.
Contribute to a Traditional IRA
Say the tax experts, you have until the tax deadline day in April to contribute to a traditional IRA. What you contribute can reduce your taxable income and will reduce the tax you owe. If you’re 50 or under, you are allowed to contribute up to $6,000 (although this could change in 2023).
If you’re 50 and older, you can contribute around $7,000. Keep in mind you can only contribute earned income to a traditional IRA. If you’re earning money from pension payouts, social security, dividends, assets, and more, those won’t count.
Start a Health Savings Account (HSA)
Just like your traditional IRA, you have until tax day in April to make your HSA contribution for the year. As the rule stands now, you can make a $3,600 contribution for yourself only, or up to 7,200 for a family. If you’re older than 55, you can add another $1,000.
But here’s the catch: you are required to be insured by a high-deductible health plan (HDHP) in order to make the contribution. Experts say that to qualify for an HDHP the plan must require a minimum annual deductible of $1,400 for individuals and $2,800 for families. It will also require you to pay up to $7,000 in out-of-pocket expenses for yourself and $14,000 for the entire family.
Interest on Student Loans
Back in 2021 during the COVID-19 pandemic, most folks weren’t required to make student loan payments. But those who did make the voluntary payments did not have to pay any interest. However, if you have a private student loan, you likely had to continue to make payments and pay the interest.
While many people are well aware that mortgage interest is deductible, most student loan interest is also deductible. In fact, you can deduct up to $2,500 in interest each year, or the actual amount you paid, whichever is the lesser. If you happened to make more than $600 in interest payments, you should obtain a Form 1098-E, Student Loan Interest Statement.
Even if you take the standard tax deduction you can also deduct up to $600 on your tax return for donating to charities. Similar to student loan interest, this is considered an “above-the-line deduction.”
The charitable deduction is required to have been made in cash. Household items, clothing, used cars, furniture, etc. will not count. However, if you itemize your return, items you’ve donated to charity such as the Salvation Army are eligible for a deduction.
In the recent past, the charitable deduction for cash donations increased to $300 per filer. That meant married couples could claim a total of $600. But check with your accountant to see what you are able to claim for the 2022 tax year.Infographic Provided By individual tax services company, Mowery & Schoenfeld