If you're an adult high earner without a spouse or dependents, it can often be hard to find ways to reduce your tax bill. Many tax deductions or credits don't apply to your case, and the standard deductions may not do much to lower your taxable income. So, what can you do to help yourself in this situation? Here are 5 ideas to lower your taxes while planning for the future.
Max Your Retirement
Step one in lowering your tax bill is perhaps the easiest for many workers: make sure you're contributing the maximum to your retirement plan at work. Multiply your contribution by the percentage of income tax you pay to determine how much it can lower your taxes. Along with this, you may want to open an Individual Retirement Account on your own and contribute to it as well. You can choose between a traditional IRA and a Roth IRA. While contributing to a Roth IRA will not help your tax situation now, it will provide tax-free income when you retire.
Use an HSA
If you are a healthy high earner, it may behoove you to look into a High Deductible Health Plan (HDHP) for two reasons. First, high deductible plans are nearly always significantly lower in premiums. Secondly, you may be able to open a Health Savings Account either through your employer or on your own. Contributions to an HSA are not taxable and you can take out the money penalty-free as long as it's for qualified medical expenses. You can save the money in an HSA for as long as you want, so it can provide an investment in the future.
Invest in Property
Although investing doesn't always lead to lower taxes in the current year, there are a lot of positives to doing so. If you invest in a house to live in, for example, you may be able to deduct the mortgage interest, points, real estate taxes and other items when filing your taxes. Purchasing investment rental property (go to websites like this for more information) can provide either additional income or a loss that you can take against any other passive investment gains to prevent them from being taxed as much.
Harvest Capital Losses
Make sure you harvest any taxable investment losses before the end of each year. Also, be sure to note any losses that exceeded the $3,000 limit each year so that you can take the rest of the loss the following year. Harvesting losses by selling poor-performing investments (stocks, bonds, property or business ventures) can reduce the amount of taxable investments that you do have to pay tax on.
Itemizing your deductions rather than taking the standard single deduction (only $6,300 in 2015) can reduce your taxable income significantly. In addition to primary home expenses listed above, you can also include charitable contributions (in cash, property or mileage), the cost of tax preparation or a safe deposit box, investment expenses, unreimbursed employee expenses, casualty losses and large medical expenses. If you suspect you may be able to itemize but aren't sure, just keep these receipts in a file throughout the year and do the math when filing.
Finding ways to lower your taxes as a single adult who makes good money can be harder than it is for families, but the savings are worth the added time and effort.