Practical Advice to Reduce Income Tax

By Nicola Cyr, CFP®, EA

Tax season can feel like a challenge for anyone, regardless of income or financial situation. With so much to do and think about, the process can be overwhelming. Fortunately, there are many strategies available to help taxpayers make the most of their deductions and keep more of what they earn.

In this article, we’ll share some often-overlooked ways to maximize your tax deductions, offering practical tips for individuals, families, and small business owners.

Above-the-Line Deductions

One of the most effective ways to maximize tax deductions is to lower your annual taxable income. The IRS allows you to subtract certain expenses from your total income, the result being your adjusted gross income. They’re called above-the-line deductions because their total is directly above the line for adjusted gross income on tax forms.

You can make above-the-line deductions whether you itemize your deductions or take the standard deductions. Some of the most common above-the-line deductions include the following:

HSA contributions: A health savings account (HSA) allows you to use your contributions to pay for medical expenses and reduce your income by the same amount, lowering your taxable income.

Student loan interest: If you’ve taken out a student loan, you can deduct up to $2,500 of interest on qualifying student loans.

Educator expenses: If you’re an eligible educator or teacher, you can deduct up to $300 worth of classroom supplies to reduce your taxable income.

There are a few other ways to generate above-the-line deductions. A professional tax advisor may have additional strategies.

Below-the-Line Deductions

After calculating your adjusted gross income, you can take either the standard deduction or the itemized deduction. The itemized deduction may be more beneficial to you depending on what you paid towards below-the-line deductions. Some of the most frequently used below-the-line deductions include:

• Sales and local taxes 
• Mortgage interest
• Charitable donations
• Medical expenses
• Property taxes

These below-the-line expenses can help maximize tax deductions and further savings if the sum total of allowable below-the-line deductions is higher than your standard deduction

Tax Credits

Qualifying tax credits directly lower your total tax bill. They’re different from deductions in that they reduce your overall tax liability instead of lowering your taxable income. 

Tax credits can be nonrefundable or refundable. Nonrefundable tax credits can take your tax bill down to zero. If your credits are higher than your tax balance, you won’t receive the additional amount. With refundable credits, you can take your tax bill to zero, and if they exceed the amount of your tax bill, you’ll get the extra balance back.

Some of the more common tax credits include:

• Child tax credits
• Child and dependent care expenses
• Education credits (including Lifetime learning or American Opportunity credit)
• Credits for purchasing energy-efficient appliances and products, including windows, doors, solar panels, and so forth

Tax credits are powerful ways to utilize expenses paid during ordinary life towards reducing your total tax liability.

Small Businesses and Side Hustles

Those who own small businesses or have a side hustle may be able to save money on common expenses and reduce taxable income. Some expenses you might be able to deduct from business income include:

• Business operating expenses (office space rental, equipment, utility bills, supplies)
• Home office deduction (utilities, mortgage interest, repairs)
• Qualified business income deduction
• Travel and meals for trips related to business
• Vehicle expenses for business-related travel (gas, insurance, maintenance)
• Health insurance for the self-employed
• Retirement plan contributions (solo 401(k), SEP, SIMPLE)

You might find more opportunities to maximize tax deductions on your business with help from a tax professional.

Get Help with Tax Planning

CGN Advisors works with clients from all walks of life, providing practical and tailored financial advice. Whether you’re a small business owner, a family focused on long-term savings, or navigating the complexities of tax planning for the first time, our fee-only services are designed to meet your unique needs. As fiduciaries, we prioritize your best interests.

To learn more about maximizing your tax deductions, schedule a meeting by contacting us online, calling our Manhattan, KS, office at (785) 340-3434, or our Rogers, AR, office at (479) 335-1034. We look forward to helping you make confident financial decisions.

About Nicola 

Nicola Cyr is the Director of Operations & Compliance at CGN Advisors, a Fee-Only, financial advisory firm based in Manhattan, Kansas. CGN’s team of financial advisors is made up of native Midwesterners who are passionate about helping clients plan for the future. An advisor since 2017, Nicola utilizes her in-house tax preparation and planning proficiency to strengthen client relationships with their advisors and the firm as a whole. She appreciates the value and team approach CGN provides, allowing them to offer services in a range of complex planning areas without the need to outsource. Combining her affinity for educating people, financial puzzles, and a personal motivation for excellence, Nicola enjoys the challenge of balancing the quantitative “right answer” with the qualitative aspect of behavioral finance for each unique client situation. 

Nicola holds a Bachelor of Science in Personal Financial Planning and a minor in English from Kansas State University, the CERTIFIED FINANCIAL PLANNER® certification, as well as the Enrolled Agent (EA) designation, which permits her to practice before the IRS. Prior to joining the CGN team, Nicola gained experience as a licensed State Farm Insurance saleswoman and as a research assistant for Stu Heckman, PhD, CFP®, assisting with research papers and development of undergraduate class content.

Nicola and her husband, Ryan, have two sons, Ezra and Elias, daughter, Evangeline, and a faithful hound, Phoebe. Most of Nicola’s free time is spent with family, participating in her children’s extracurricular activities, and nurturing her passion for houseplants (owning and caring for 50+ between the office and home). To learn more about Nicola, connect with her on LinkedIn.

Investment advisory services are offered through CGN Advisors, LLC, a fee-only SEC registered investment advisor. Tel: (910) FEE-ONLY. 

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