Community Question: How To Pay Less Taxes in 2024!

Today on the show taxes, lowering your taxes. What can you do to lower your taxes and keep more money in your pocket and give less to the government, to Mr Uncle Sam? Let's talk about it. Welcome back to the channel, to the podcast, to the content that I am bringing to you to help you become a smarter, stronger ADHD-er with your money. Your money is so important to you, it's important for your life, for everything. So we're talking about taxes today and I'm in a funny mood, so here we go. So Yvonne had a question from the Facebook community ADHD Money Talk. Facebook community Links in the description or wherever we're gonna put it, I don't know. So the question is from Yvonne. She says how can I lower my tax bill? Four one K is not an option. I have a state pension. It contributes to a four or three B, only $4,000 a year. I max my FSA $2,000 a year into that. Do you have any other tax saving tips? Great question. First thing I'm gonna say is everything I'm about to say is not advice, not a recommendation, just a educational opportunity for me to talk about some things that could be done by someone somewhere. Not personal advice to you, because I don't have your whole picture, and that's what I would need to ever be able to give actual recommendation. Very important to know that. So, with that said, let's talk about this. So often I find people are too focused, or just very focused, or just very averse to paying tax, so they wanna pay less tax, or, like ug, the thought of paying $1 more in taxes driving me nuts. But sometimes we're gonna miss the forest for the trees in this situation, because it's important to keep in mind that, in order to pay less in taxes, you usually have to have an outlay of money to somewhere. Sometimes that's giving money away, sometimes that's making a business expense for your business to lower your taxable income, and sometimes that means locking your money up in an investment vehicle, such as your 403B, to get that tax benefit. So, with that in mind, you wanna make sure that, before you implement any strategy, you're A talking to a tax accountant and really, though, making sure that there's no more important priority for these funds. So, before you focus on trying to lower your tax bill, you wanna make sure you have your emergency fund taken care of. You wanna make sure you have no high interest debt. You wanna make sure that the extra funds that you're gonna be using to reduce your taxes. Don't have a higher order priority before you start focusing on tax. And also, tax planning is something to think about. Tax planning is different than just minimizing your taxes because let's say that, for instance, and within two years or so you're expecting to get this huge promotion, your tax bracket's gonna jump up to a new level. You know. In that case, what you might want to be thinking about for this year would be actually to pay more in taxes, because maybe you're going to, instead of putting money into the 4 or 3B, you're going to start a Roth IRA, pay tax now at that lower rate that you're at now, get the money in there so it can grow tax to furl and tax free. And then in two years, once your tax bracket goes way up, you're going to say, okay, well, now if I actually put money into a regular 4 or 3B, get the tax to furl, I'm paying no tax on my high rate and that way I could take that money out maybe later in retirement when I'm at a low tax rate. So with tax planning, you're always trying to reduce or minimize your lifetime lifetime effective tax rate, not just trying to minimize your tax rate in any one given year. You have to take a longer term zoom out picture of everything going on. So that's something to keep in mind or just to understand, just so you can at least let that sink in. But yeah, so let's keep going here. So, with all that said, to answer the question more directly about some things you can do to reduce your tax bill in the near term is, well, the first thing that I would be looking at or thinking about. The first thing that pops my mind is that you have this 4 or 3B and every dollar you put into the 4 or 3B is dollar for dollar, reducing your taxable income. So, at only $4,000 right now that you're contributing, you are leaving for 2024 $19,000 of income deferral on the table and if you're over 50 years old, you're actually leaving extra. I believe it's $7,000 extra dollars that you could be contributing. So let's say that you make $125 and have a 24% effective tax rate and have a 24% effective tax rate and you contributed the whole $23,000 that is available. Should I do it the other way? 23? I don't know. That is available for 2024. Then your tax bill would be reduced by somewhere in the neighborhood of $6,000 because you've reduced your taxable income by $23,000. And that means that on that $23,000, you aren't paying 24% effective tax. Okay, so let's see what we can do all besides that. So, apart from this idea, you know ways to reduce your tax bill potentially could come from seeing if there are any tax credits available. For you know, maybe it's like an energy efficient improvement to your home. So maybe you know, you, you need to do some work to your house and you're like, okay, well, we got to do this and there's a chance to improve our energy efficiency. So let's see if we can qualify for the federal tax credit, which I believe is up to $3,200 could be available to you. Or maybe if you need a new car and you like cars and you've kind of had your eye on an EV and you're in a financially strong position to be able to do that, then maybe you could consider buying an electric vehicle because there are still tax, federal tax credits available for that. And just as a quick educational point, a tax deduction lowers your taxable income and a tax credit lowers your tax bill, your tax due. Dollar for dollars, the tax credits are more valuable than tax deductions. Just as a rule, just as something to remember. And then you know beyond that. You know there's things like charitable giving, starting a 529 for a kid. Just keep in mind, with a 529, which is a educational account, it's not federally tax deductible, so the amount you put in won't be reducing your taxable income on a federal level. But I think most states will give you a tax deduction Not all states. It varies by state, so that's something you'd want to look into for your state. And then the last thing that's coming to my mind as a reasonable thing to consider and explore is getting a high deductible health insurance plan where you could then attach a health savings account, also known as an HSA, to that, because HSAs are a beautiful, beautiful, beautiful thing. Hsas are amazing, like amazing. Like amazing because it's the one place where you can earn money, have money come to you and have the government not touch it and then invest it and the government never touches it, and then you can take the money and you can use it for qualified health expenses and the government never touches it. So it's like the one place in life, financial life, where the government never gets his hands in the cookie jar ever. It's beautiful and so it's not for everybody though. For instance, if you have health issues and you have to go to the doctor a lot, then you're likely going to have to be hitting up to that deductible every year and every dollar you put into the HSA is going to come right back out for health. So HSAs make a lot of sense for people that are healthy and believe that they're going to be able to get through several years of having it where they don't need to use all of, or even most of the money that gets put into it. So for single people you can put in tax deductible, tax deferred and ultimately tax free for health expenses 38.50 a year and for families 77.50. And it's a triple tax benefit. It's underappreciated and it's something to really consider that will be able to reduce your taxable income and your taxes.