Updated: Jan 4
If you're looking to reduce the amount of taxes you pay on your W2 income, here are five strategies you can try:
1. Take advantage of tax deductions. Many tax deductions available can help reduce your taxable income, including deductions for charitable donations, mortgage interest, and medical expenses. Track and document your eligible expenses to claim these deductions on your tax return.
2. Contribute to a retirement savings account. Contributions to certain retirement savings accounts, such as 401(k)s and traditional IRAs, are tax-deductible, which means they can reduce your taxable income. This can be a great way to save for your future while also lowering your tax bill.
3. Use tax-advantaged savings accounts. In addition to retirement savings accounts, there are other types of savings accounts that offer tax benefits. For example, Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) can help you save for medical expenses on a tax-advantaged basis.
4. Take advantage of tax credits. Tax credits are a tax benefit that can directly reduce the amount of taxes you owe, dollar for dollar. For example, the Earned Income Tax Credit (EITC) is a credit available to low and moderate-income taxpayers that can significantly reduce their tax bill.
5. Defer income to a later tax year. If you can, you can choose to defer receiving some of your payments until the following tax year. This can reduce the income you need to report on your current year's tax return, which can lower the taxes you owe.
Reducing your W2 taxes can be complex, and you must consult with a tax professional before making any significant decisions. However, taking advantage of tax deductions, credits, and other strategies may significantly lower your tax bill and keep more of your hard-earned money.