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5 Simple Strategies to Reduce Taxable Income for W-2 Employees

 

Tax-advantaged accounts are powerful tools your employer may offer to help you reduce your taxable income. They allow you to contribute pre-tax dollars, grow your investments tax-deferred, and potentially withdraw the funds tax-free. Here are some commonly utilized tax-advantaged accounts to consider:

  1. 401(k): If your employer offers a 401(k) plan, contribute the maximum allowed amount. Not only will this reduce your taxable income, but it will also help you save for retirement.

  2. Traditional IRA: Contributions to a traditional IRA are tax-deductible, and the earnings grow tax-deferred until withdrawal. Consider maxing out your contributions to reduce your taxable income.

  3. Roth IRA: After tax contributions you make to a Roth IRA can grow tax free while having the option to withdraw money without penalty after 5 years of compounded growth from dividends, interest, and capital gains.

  4. Health Savings Account (HSA): An HSA allows you to contribute pre-tax dollars to pay for qualified medical expenses. Contributions to an HSA are tax-deductible and withdrawals for qualified medical expenses are tax-free.

  5. Flexible Spending Account (FSA): Similar to an HSA, an FSA allows you to set aside pre-tax dollars for eligible medical expenses. Be sure to estimate your expenses carefully, as funds in an FSA may not roll over from year to year.

 

Guest Post Written By:

Connor Quinn, CPA. (August 19th, 2023). 5 Simple Strategies to Reduce Taxable Income for W-2 Employees. https://www.fishingfortaxstrategies.com

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