With the tax season ending for the majority of taxpayers, some have encountered pleasant and unpleasant surprises. One question that has been consistently asked is,
How can I lower my overall tax bill now that my itemized deductions are not really making an impact?"
With the standard deduction nearly doubling, many expenses that had an impact at lowering your taxable income are no longer effective. Previously, home mortgage interest, property taxes, donations and miscellaneous deductions all worked in concert and were greater than the standard deduction. While these still are included in calcuating itemized deductions, it can be difficult to pierce the standard deduction amount.
So what control do you have now to help lower your taxable income? The main mechanism you can use are retirement contributions.
Contributing to your 401(k), 403(b), or IRA account not only serves as providing savings to your retirement, but now has a more profound impact. This have been a consistent tool already to lower your taxable wages (if pre-tax dollars were contributed), but with this being the sole tool now for most people to lower your taxes, more attention needs to be placed on this.
And if you’re in the boat of using the standard deduction, you’ll be happy to know that these contributions lower your taxable income even before itemized or standard deductions are factored in! This means the standard deduction is decreasing more of your taxable income since it's subtracting from a lower starting point of your taxable income.
contributing to a retirement account lowers your taxable income and allows the standard deduction to further attack (even more so) your taxable wages, thus lowering your tax bill.