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6 Ways to Reduce Your Taxable Income in 2016

By U.S. News & World Report

As the new year kicks into gear, it’s time to get a jump start on maximizing your savings by taking advantage of ways to reduce your taxable income in months ahead.

By implementing the money-saving tips below where applicable, it’s possible to shave tens of thousands of dollars off of your taxable income in 2016. Let the savings begin!

Charitable Contributions

With charitable contributions, you can tag team your efforts by reducing your taxable income and making the world a better place. According to the IRS website, it’s possible to deduct giving amounts of up to 50 percent of one’s adjusted gross income when donating to a qualified organization.

Bonus: You can give either cash or property items and take the fair market value of the property item as a reduction of your taxable income.

Medical Expenses

Opening an account such as an HSA (health savings account) or an FSA (flexible spending account) can be a great way to reduce your taxable income, provided you have upcoming medical expenses that will accrue during the year.

A variety of medical expenses qualify for use with an HSA or FSA, such as impending surgeries, prescription medicines, doctor visit copays or dental expenses.

Both HSAs and FSAs can help you to reduce your taxable income. However, there are some differences between the two accounts you’ll want to consider:

— HSAs are only available to those who have a high-deductible health plan, whereas the FSAs have no eligibility requirements.

— HSA contributions are capped at $3,350 per individual and $6,750 per family annually, and FSA contributions are capped at $2,550 per year for both individuals and families.

— HSA contribution amounts can be changed at any time during the year, whereas FSA contribution amounts can only be adjusted during open enrollment periods or with a qualified change in family status or employment.

Whichever type of account you choose, there are significant savings to be had when choosing to reduce your taxable income this way.

Interest Payments

According to the IRS, five types of interest payments can be deducted from your taxable income if you file using the long (1040-A) form:

— Interest paid on your home mortgage

— Interest paid on student loans

— Interest paid on your business loans

— Interest paid on money borrowed to purchase an investment property

— Interest on investment income (limited to your net investment income)

Talk with your certified public accountant about what types of interest payments you may have that can be used to reduce your taxable income.

401(k) Contributions

For the 2016 tax year, the IRS has approved 401(k) and 403(b) contributions of up to a whopping $18,000 a year for those age 49 and under. Those 50 and over get the option to add an additional $6,000 to their retirement accounts, giving them the ability to reduce their taxable income by up to $24,000 with just 401(k) contributions alone.

By maxing out your 401(k) contributions, you not only work toward preparing a more secure future for yourself, you work to minimize your 2016 taxable income by as much as possible.

IRA Contributions

IRA contributions can be used on top of 401(k) and/or 403(b) contributions to further reduce your taxable income. For those under age 50, a traditional IRA can be used to reduce taxable income by up to $5,500. Those over age 50, they qualify for a traditional IRA contribution of up to $6,500.

Bonus: IRA contributions for the prior year can be made through April 15 of the current year, so there’s still time to reduce your 2015 taxable income by making a qualifying traditional IRA contribution.

Business Tax Deductions

Estimates show that as much as 30 percent of American jobs are held by the self-employed and those they hire. In order to minimize your taxable income as much as possible, it’s important to take full advantage of the tax deductions available to self-employed individuals if you own your own business, no matter how small.

If you’re self-employed, talk to a qualified CPA who specializes in preparing taxes for self-employed individuals to see if you can reduce your taxable income with deductions for things like your home office, Internet and phone expenses, travel expenses and health care premiums.

Learning how to take full advantage of the tax deductions available for your specific tax situation can be a smart way to reduce your taxable income and increase the amount of money you save and invest each and every year.

More from U.S. News

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6 Ways to Reduce Your Taxable Income in 2016 originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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