THE DOWNLOAD MONEY MATTERS 4
It’s always best to do the math to calculate your total itemizable expenses and see if they exceed the standard deduction for your fi ling status.
remainder trust (CRT). This lets you transfer appreciated
assets to the CRT and receive income from it for life or a specifi ed time period (up to 20 years). After the income period ends, the
charity you designate receives the remainder of the assets in the trust. And you can get an immediate
tax deduction for the money or assets you put in the CRT in the year you created it, explains Tim Hurban, owner and founder of Hurban Law, an estate planning law fi rm in Georgia. “This can be particularly eff ective
for individuals holding highly appreciated assets, as the trust can sell these assets without incurring capital gains tax,” Hurban says. This means the full value of the
assets can be reinvested, potentially providing a larger income stream for you and other benefi ciaries of the trust while also giving the charity a larger contribution at the end of the income term.
allowances on your W-4 can help you manage your tax liability more effi ciently and potentially save you money. The more allowances you claim, the less tax is withheld from your paycheck. But claiming too many allowances
5
can result in underpayment and a large tax bill along with potential penalties at the end of the year. The trick is to claim the right
amount to avoid penalties. The IRS has a detailed withholding calculator (
www.irs. gov/individuals/tax-withholding- estimator) that lets you estimate what your tax liability will be with a high degree of accuracy. One area where people get into
trouble is income outside of regular employment. If you have signifi cant income from other sources, such as investments, rental income, or a side business, you should make estimated payments during the year in the quarters you receive that income. Major life events such as
retirement or starting to receive Social Security can also aff ect your tax situation. If you plan on retiring mid-year, you should update your W-4 to reduce the number of allowances or increase withholding to account for the fact that you’ll have less earned income for the year.
CONTRIBUTE TO A HEALTH SAVINGS ACCOUNT (HSA)
Contributions you make to an HSA are tax-deductible. Plus, they grow tax-free, and as long as the money you withdraw is used for qualifi ed medical expenses, you can take it out tax-free. This can be a triple tax advantage
that goes way beyond traditional retirement accounts, which require you to either pay taxes on withdrawals or pay taxes on the money before you contribute it.
ADJUST YOUR WITHHOLDING
Claiming fewer or more
FREE TAX FILING In 2020, the IRS debuted its Free
File program. It allows taxpayers with adjusted gross income of $84,000 to use online tax prep software off ered through partner companies to file their federal and some state tax returns free. Companies ranging from TaxSlayer to TaxAct participate. Last year, the IRS expanded options with Direct File, an IRS-run service that lets you file your taxes for free if you earn less than $200,000 (or $168,000 if you had more than one employer during the tax year). About 140,000 filers used the service last year, and 1.9 million have used the Free File service since it began five years ago.
MISSING INCOME It’s easy to do: You switch jobs
and forget to roll over your 401(k) funds. Then, before you know it, 10, 15, or 20 years have gone by, and you forgot you even had a 401(k) with an old employer. It’s happened to about 30 million Americans. Now, a new retirement fund lost- and-found tool can help recover money you may be entitled to. Just verify your identity through login. gov, then go to
Lostandfound.dol. gov and search for old 401(k)s left behind from former employers.
TAX BREAK High-deductible health plans (HDHP) could become more attractive in 2026, as employer health insurance premiums rise an average of 7%-9%. One of the benefits of HDHPs is that you can use a health savings account (HSA) to set aside money for future healthcare expenses. HSAs have triple tax benefits: Contributions are made before taxes, growth in the account is not taxed, and you aren’t taxed on withdrawals as long as the money is used for medical expenses. Unlike flexible spending accounts (FSAs), you can roll over unused HDHP money and let it grow until retirement and beyond.
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