Tax help best companies in Houston, Texas? Which receipts you’ll need to provide depends on whether you itemize your deductions or claim the standard deduction. You’ll want to choose whichever produces the greater write-off, but the only way to know for sure is to add up your itemized deductions and compare that with your standard deduction. For the 2019 tax year, the standard deduction for single taxpayers is $12,200 and for married couples filing jointly it is $24,400. For 2020, these amounts rise to $12,400 for single taxpayers and $24,800 for married couples filing jointly.
Let’s start with retirement accounts. Employer-based accounts such as 401(k) and 403(b) accounts allow you to lower your taxable income easily. That’s because every dollar you put into these accounts is not taxed until you withdraw the money from your account — and that reduces your tax burden each year you make a contribution. The benefit here is that if you wait until you have retired to withdraw money from your 401(k), your income will be lower because you’ll no longer be drawing a salary. The result? You’ll be in a lower tax bracket, which means that the money you withdraw will be taxed at a much lower rate than it would’ve been if you’d had to pay taxes when you earned it.
Timing your income involves moving it from one year to another. You first have to determine the year in which you expect to pay the most in taxes. Review your current expenses before the end of each year and prepay some of those amounts if you want to reduce your income for the current year. You can also increase your expenses and decrease income by making expenditures such as stocking up on supplies. The end of the year is also the time to review your customer accounts if your business operates on the accrual accounting method. First, find those customers who aren’t likely to pay you. You can write off the amounts they owe as “bad debts” and deduct these amounts from your business income to save on taxes. Read additional details on https://greentree.tax/best-tax-preparation-services-in-houston/.
Slow Down to Save Taxes. If you buy a house or condo, fix it up and then sell it in less than a year, you’ll pay taxes on the profit at ordinary income tax rates (10%, 12%, 22%, 24%, 32%, or 35%) based on your income. Hold it for more than a year and you’ll be taxed at the lower long-term capital gains rates (0%, 15%, or 20%), depending on your income. You may decide it is worth it to you to flip the property quickly, but if you get caught in a slower market and can’t unload it quickly, you’ll save a lot on your taxes by holding it more than a year.