- Everybody definitely wants to save on their taxes,
and we start thinking about this more and more
towards the end of the year.
But regardless if you're watching this video
in June or September or November,
there are 10 ways that you can save on your taxes
before the end of the year
so that you owe as little as possible.
Stick around, let's do this.
(upbeat music)
Hey guys, it's Justine with The College Investor,
Investing & Personal Finance for Millennials.
And I bet you're wondering,
"What are these 10 ways that you can save on your taxes?"
Let's go ahead and hop into the list.
Number one is to boost your 401k contributions.
So whether you have a 401k or a 403b,
that money is used with pre-tax dollars
that goes inside of those retirement accounts.
And remember, any pre-tax dollars is subtracted
from your income,
which reduces the amount of taxable income that you have.
Now for 2021,
the max contribution you can put
into these types of retirement accounts is $19,500
for the year.
So the more that you put into a 401k or 403b,
the less taxable income that you have.
So even contributing,
even if you don't max out to the $19,500,
even contributing just a hundred dollars more per paycheck
is going to reduce your taxable income.
Number two is to max out your traditional IRA.
A traditional IRA is taxed in the same way that a 401k is.
So you're using pre-tax dollars,
which reduces your taxable income.
For the 2021 year,
you can contribute up to $6,000 into this type of account
if you're under the age of 50
and $7,000 max contribution if you're over the age of 50.
Are you self-employed?
Number three would be to max out your SEP IRA
or a solo 401k.
With a SEP IRA in 2021,
you can contribute up to 25% of your income
or up to $58,000 per year with a solo 401k.
You can contribute up to $58,000 per year as well.
Number four, love this way
to reduce the amount of taxes that you owe,
and that is to max out your HSA or a health savings account.
Now, if you have a high-deductible health plan
through your health insurance provider,
then you most likely have
a health savings account associated with it,
which means any type of contributions that you make
into that HSA gets reduced from your taxable income.
Now, if you are a single filer,
then you can contribute up to $3,600 for the year.
If you are a married filer
or you have a family status,
then you can contribute up to $7,200
inside of that HSA account,
and that reduces your taxable income.
Number five is to contribute to a 529 college savings plan.
Now, there are 32 states
that actually have state income tax deductions.
If you do a contribution to a 529 plan within a state
that uses a 529 contribution as a tax deduction,
this is a great way to not only save
for your child's college education
but also save on taxes too.
And don't forget,
we have a mega guide of 529 plans
for every single state listed on thecollegeinvestor.com.
You'll definitely wanna check that out
if you are interested in putting together a 529 plan
for your child.
Number six, and this may not be one
that you're really thinking about,
but it certainly reduces your taxable income,
which is to make your home more energy efficient.
Now, you can do this by replacing old air conditioners
or heaters, or maybe you've set up solar panels in the past,
these are ways that you can actually get
an energy credit back on your taxes
and reducing the amount that you owe.
In 2021, you can get up to a 26% tax credit
just by installing those solar panels.
Number seven is to maximize your work-related expenses.
So don't forget about any type of mileage reimbursement,
uniforms, subscriptions, dues,
software, or apps that you use.
All of those things can be included
as expenses from your business,
which reduces your overall taxable income.
But don't go crazy on the spending
because then you're just spending for the sake of spending.
And the whole point is to make sure you're saving money,
but if you're spending money, defeats the purpose.
So just be mindful of tracking those expenses.
A great way to do that
is by using online bookkeeping software.
And we have a whole article for those of you
who are running your own business
on which best bookkeeping software to use.
You'll definitely wanna check that out.
Number eight is to donate to charity.
Even if you don't itemize your tax return,
you can still deduct up to $600 in charitable contributions.
Just make sure that you are tracking
and saving receipts along the way.
So even if it's just 600 bucks,
I still say that's a win in reducing the amount
that you owe.
So start by going through your garage,
different things that you can actually donate,
and also think about those monetary contributions
that you've made to your favorite charity
or to a religious organization.
Number nine is to sell your losing stocks.
So selling those low-performing stocks
actually is called tax-loss harvesting.
It's a really good investment strategy.
If you don't know what that is,
be sure to check out our article on tax-loss harvesting.
And this is a way to reduce the capital gains tax
that you might incur from your investments.
Number 10 is to wait to rebalance your portfolio.
So a lot of mutual funds will typically hand out
their capital gains and distributions
before the end of the year.
But if you jump into a mutual fund beforehand,
then you're essentially giving yourself a tax burden.
So you can wait until January to deploy that money,
saving some bucks for yourself in the process.
All right, so those are the 10 ways that you can save
on your taxes before the end of the year.
It's always a good idea to start
in order of how you wanna do this.
So a good idea would be to just focus
on maxing out that 401k.
If you can do that,
then move on to the next thing.
Maybe you have a traditional IRA,
and now we can start maxing that out.
I feel like if you kind of go in a sequential steps,
that you'll be able to make the most
out of reducing your taxable income.
And it's a great way to keep yourself organized
with your financial management.
Don't forget, if you wanna check out
all of the resources that I mentioned in this video,
be sure to check them out at thecollegeinvestor.com.