On today’s Taxes Made Simple, we delve into the most requested and important topic that every taxpayer should be aware of: strategies that average to wealthy earners can utilize to pay as little taxes as possible!

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*Disclaimer: I am not a financial advisor nor am I an attorney. This information is for entertainment purposes only. It is highly recommended that you speak with a tax professional or tax attorney before performing any of the strategies mentioned in this video. Thank you.

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How to Save BIG on Taxes with an Average Salary

Taxes are an unavoidable part of life, but that doesn’t mean you can’t take advantage of legal strategies to minimize your tax burden. While most people believe that substantial tax savings are only available for high-income earners, there are actually several avenues for individuals with average salaries to save big on taxes. By understanding and implementing a few key tax-saving strategies, you can keep more money in your pocket and achieve financial goals faster. Here are some ways to save huge on taxes while earning an average salary:

1. Contribute to Retirement Accounts:
One of the most effective ways to save on taxes is by maximizing contributions to retirement accounts such as a 401(k) or an Individual retirement account (IRA). Contributions to these accounts are typically tax-deductible, meaning you can reduce your taxable income while simultaneously saving for the future. The earnings on these investments grow tax-free until retirement, providing you with both immediate tax advantages and long-term financial security.

2. Take Advantage of Tax Credits:
Tax credits offer significant savings by directly reducing your tax liability. For individuals with average salaries, the Earned Income Tax Credit (EITC) can be particularly advantageous. The EITC is a refundable tax credit designed to assist low to moderate-income earners. The amount of credit varies based on factors such as income, filing status, and the number of dependents. By researching and claiming available tax credits, you can decrease your tax bill substantially.

3. Utilize Flexible Spending Accounts:
If your employer offers a Flexible Spending Account (FSA), take advantage of it. FSAs allow you to set aside pre-tax dollars to cover qualified medical expenses, dependent care, or transportation. By utilizing an FSA, you reduce your taxable income and save on taxes for expenditures you would typically make anyway.

4. Deduct State and Local Taxes:
Even if you’re earning an average salary, you can still save on taxes by taking advantage of itemized deductions. Specifically, paying attention to state and local taxes (SALT) can provide significant savings. By deducting SALT from your federal tax return, you can reduce your taxable income. This is especially relevant in states with higher income taxes or property taxes.

5. Explore Homeownership Benefits:
If you’re considering homeownership or already own a home, there are several tax benefits that can aid in saving on taxes. Mortgage interest deductions can be a substantial tax-saving strategy. By deducting the interest paid on your mortgage, you can significantly reduce your taxable income. Additionally, property tax deductions and certain home improvements, such as energy-efficient upgrades, may also qualify for tax credits or deductions.

6. Maximize Health Savings Accounts:
If you have a high-deductible health insurance plan, a Health Savings Account (HSA) can be an excellent tool to save on healthcare costs and taxes. HSAs offer a triple tax advantage – contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. By contributing the maximum amount to your HSA, you can reduce your taxable income while accumulating funds for medical expenses.

7. Educate Yourself:
Lastly, one of the most crucial aspects of saving on taxes is staying informed about changes in tax laws and utilizing available resources. Familiarize yourself with tax-saving opportunities relevant to your specific circumstances. Understand deductions, credits, and options that can save you money. Online resources, tax software, and financial advisors can provide valuable guidance to help you navigate the intricacies of the tax code.

While tax savings may seem more challenging for individuals with average salaries, with the right knowledge and strategies, significant savings are within reach. By leveraging retirement accounts, maximizing credits, utilizing flexible spending accounts, deducting state and local taxes, exploring homeownership benefits, maximizing health savings accounts, and staying informed, you can save big on taxes and secure a healthier financial future. So, start implementing these strategies and watch your tax bill shrink while your savings grow.