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You might have always wanted to retire early, but that’s only possible if you put away a substantial amount of capital. After retirement, you live on your investment income, but you can only do that if your savings allow it. Maxing out your contribution to a retirement account not only allows you to think about early retirement, it also lets you reduce your current tax burden. Contributions to IRAs and 401(k)s are often pre-tax.
Your children can really help lower your tax burden. Not only do you get to claim them as dependents, you may also qualify for the child tax credit, which knocks $1,000 off your owed taxes per child. You can deduct all childcare expenses and start a college savings account that will grow tax-free. The top tax preparation software will help you properly deduct these costs.
A small business can be a great way to minimize your tax burden. You can take a loss for the first two years, and then take more control over your tax debt. A business might allow you to claim deductions for some of your home, write off business-related travel or cover some regular expenses that support your business like a cell phone or internet service.
Healthcare costs may be tax deductible. If your out-of-pocket expenses exceed the threshold, you can write off your co-pays for health services in a specific year. You may also be able to deduct money spent on things like acupuncture, bandages or breast pumps.
During retirement, one of the biggest expenses you might face is healthcare. The average couple will spend $260,000 on healthcare expenses during retirement. Since you can contribute to an HSA tax-free up to an annual maximum, you can set aside a lot of the money you will need during your prime working years and save money on your end-of-year tax filing.
While a gift won’t affect your tax burden, you can help fund your children without worrying about double-paying. Gifts up to $14,000 annually are tax-free, so you can send your child off to college with a nest egg or help out during lean times. Married couples can even double that amount without worrying about giving the gift of more taxable income along with the money.