An average American pays around $500,000 towards taxes during their entire life, which is about 34% of the estimated average lifetime earnings. The people of Seattle are no exception to this figure. While you might be paying a substantial amount towards taxes, smart and strategic investment moves could allow you to save big time on taxes. 

Digging for a tax-saving option on your own may take a lot of your time and effort. However, your job may become a lot easier if you hire a CPA in Seattle, WA, to find you the best-suited tax-saving options.

Opening a 529 account

  • A 529 account enables individuals to save for college expenses.
  • Contributing to a 529 plan will not help you save federal income tax, but it will enable you to claim a return on your state income tax.
  • However, if your contribution, clubbed with other gifts, exceeds $18,000, it may be subject to gift tax.

Invest in a 401(k) plan

  • With a 401(k) plan, your employer can offer you a tax break and allow you to set aside a fund for your retirement.
  • You can contribute a maximum of $23,000 to your 401(k) account per year or up to $30,500 if you’re over 50.
  • A self-employed person can also open a 401(k) account.
  • You will have extra money if your employer also contributes to your 401(k).

Flexible spending account (FSA)

  • Employers offer their employees a flexible spending account to provide money they can spend towards medical and dental expenses during a calendar year. 
  • The IRS limit for FSA is $3,200.
  • The funds in an FSA can also be used to purchase items like bandages, sunscreens, glasses, etc., for yourself or a dependant.
  • The unclaimed funds expire at the end of the year.

Dependent Care Flexible Spending Account (DCFSA)

  • The IRS does not charge tax for up to $5,000 from your pay that your employer diverts to your DCFSA account.
  • DCFSA funds can be used for daycare, before- or after-school care, preschool, day camps, etc.
  • The cover may vary from one employer to another.

Fund your Retirement Account (IRA)

  • You can fund a Roth or traditional IRA account to save taxes.
  • Your contribution to a traditional IRA may be tax-deductible, but you’ll have to pay taxes if you withdraw the fund before retirement or take distributions in retirement.
  • In a Roth IRA, your withdrawal is not tax-deductible, but you pay taxes on your contributions.
  • However, in both cases, the earnings on your investment remain tax-free.

Health savings account (HSA)

  • An HSA allows you to claim tax exemption on the amount you pay towards medical expenses.
  • HSA contributions are tax-deductible, but the withdrawals are tax-free if your expense qualifies as medical expense.
  • You can contribute up to $4,150 towards individual contributions, $8,300 towards family contributions, and an extra $1,000 if you’re over 55.
  • While your employer can provide an HSA, you can also start independently.