One of the most common questions asked this year from my self-employed clients was “Lequita, how can I reduce my tax bill?” The answer was the same for most of the clients. “There are some deductions we are not taking that we should consider for next filing season. What most of the clients were missing were deductions that directly reduce the amount of taxable income.
Health Savings Account: Depending on the amount you spend annually on out-of-pocket medical expenses, it may be beneficial to explore opening a health savings account. A health savings account is type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in a Health Savings Account (HSA) to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall health care costs. HSA funds generally may not be used to pay premiums. You may contribute to an HSA only if you have a High Deductible Health Plan (HDHP). For 2021, if you have an HDHP, you can contribute up to $3,600 for self-only coverage and up to $7,200 for family coverage into an HSA. For 2022, if you have an HDHP, you can contribute up to $3,650 for self-only coverage and up to $7,300 for family coverage into an HSA. HSA funds roll over year to year if you don't spend them. An HSA may earn interest or other earnings, which are not taxable.
Self-Employed Health Insurance: Many of the self-employed do not have health insurance. As the current pandemic has taught us, health insurance is a necessity. The Marketplace makes it easier than ever before for entrepreneurs to access health insurance. The self-employed health insurance deduction allows you to deduct 100% of health insurance premiums if you are not covered by another health plan through your spouse or employer.
IRA Contributions: Contributions you make to an IRA may be fully or partially deductible, depending on which type of IRA you have and on your circumstances. For 2021, the contribution limit is $6,000 ($7,000 if you are age 50 or older) or up to your taxable income amount if less than the limit.
As this year ends, it is a good time to review your profits and make adjustments. Be sure to consult with your tax professional to see if these deductions are right for you.
Contact us if you would like to learn more on tax saving strategies.
Alexandria Louis Tax Solutions, LLC
(901)414-1751 - www.altstaxes.com
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