1. Max out your retirement plan contributions
Right now, you can contribute up to $5,500 a year to an IRA and $18,500 to a 401(k) if you’re under 50. If you’re 50 or older, these limits increase to $6,500 and $24,500, respectively. There’s also a good chance these limits will continue to rise over time.
How much savings might you reap from maxing out? Imagine your effective tax rate is 25% and you sock away $18,500 this year in your 401(k). That would bring your actual tax savings to $4,625, which is hardly a bad deal.
2. Report all of your income
These days, side hustles are growing increasingly popular, with an estimated 44 million Americans holding down a second job. But if you’re going to do work on the side, don’t make the mistake of thinking you’ll get to pocket your earnings in their entirety. The reality is that the IRS is entitled to a piece of all of your income, whether it comes in the form of a paycheck at work or a personal check you get from the family you babysit for. And if you fail to report your earnings, the consequences could be significant.
Any time you earn $600 or more from a given employer, you’ll receive a 1099 form summarizing those payments. Don’t throw those forms away — what you may not realize is that for each one you get, the IRS also is sent a copy. If your tax return doesn’t show income the agency has on file, you could land in hot water.