The IRS allows many ways for individuals to reduce their income taxes. This allows you to better prepare yourself for the future while allowing more of your income to go where you want it to. Whether you live in Connecticut or another state, you can take advantage of many deductions on your federal taxes. You may also have similar deductions at the state level.
Make larger contributions to your retirement accounts
In 2022, you could contribute up to $20,500 to a 401(k) or 403(b) plan to reduce your taxes. If you have an IRA, then your tax break will count up to $6,000 or $7,000 if you’re 50 or older. Always check the current tax code to know how much you can deduct because these numbers often change.
If you go through educational assistance programs with your employer, these expenses may go under the non-taxed section of your W-2. You could improve your career options without taxation on the program. Transportation cost reimbursements and group-term life insurance up to $50,000 are also deductible.
Investing in municipal bonds is one of the best tax reduction strategies because you don’t have to pay federal tax on the interest earned. Some states and municipalities don’t take tax from this investment either.
You might qualify for the EIC (earned income tax credit) to reduce how much taxes you owe. Low-income tax earners qualify for the EIC. Those who have children can claim a larger EIC. Low- and moderate-income earners should check the Saver’s Credit for additional tax-saving opportunities. It allows you to deduct up to half of your contributions to an IRA or an ABLE account.
It’s not just businesses that can take tax deductions and implement strategies to reduce taxes. You have plenty of options as an individual to reduce your income taxes.