Many Americans could be missing out on valuable tax advantages that would reduce their tax burden today or in the future, a recent survey said.
Only 2% of Americans can correctly identify financial solutions with tax advantages, despite one in three saying they prioritize investments that would help them pay less in taxes, according to Lincoln Financial Group's most recent Consumer Sentiment Tracker.
The lack of financial awareness of using financial products and investments that provide tax benefits was true even for survey respondents working with a financial professional.
Additionally, rising costs and inflation are why 33% said it is more of a priority to invest in financial products that would lessen their tax burden.
"Ongoing challenges like market volatility, inflation and changing tax laws have the potential to hit us all hard in the wallet," David Berkowitz, the president of Lincoln Financial Network - the wealth management arm of Lincoln Financial Group, said in a statement. "That's why tax-efficient investing is an especially important aspect of financial planning that can help you build wealth and achieve your financial goals."
If you are looking to reduce your expenses amid high inflation, you could consider using a personal loan to pay down debt at a lower interest rate, saving you money each month. You can visit Credible to find your personalized interest rate without affecting your credit score.
Americans plan to use tax refunds to reach financial goals
Roughly 5 in 10 Americans said they expected to receive tax refunds this tax season and 80% planned to use it to help reach a financial goal like building up savings or paying off debt.
Tax filers should be aware that the IRS announced several changes that ended pandemic-era tax credits and could reduce the advance amount for many. The average tax refund last year was $3,039, according to the IRS, an increase of over $200 from the prior year primarily due to COVID-19 tax credits.
The Child Tax Credit (CTC), Earned Income Tax Credit (EITC) and Child and Dependent Care Credit are among the affected credits. The tax deadline for all federal tax returns and payments filing is April 18, 2023.
If you think you will receive a smaller refund this tax season but have debt you need to pay down, you could consider consolidating it with a personal loan. You can visit Credible to find your personalized interest rate without affecting your credit score.
Minimize your tax burden by using these financial tools
The lack of awareness about using financial solutions to maximize tax benefits was prevalent even among respondents that worked with a financial professional, according to the survey.
These are two examples of tax-efficient financial strategies that could impact what you pay for taxes, according to Lincoln Financial:
Bulk up your pretax contributions
Making pretax contributions to an employee retirement plan like a 401(K), health savings account (HSA), or flexible saving account (FSA) could reduce your income tax burden and allow you to grow your savings.
"A good rule of thumb is for consumers to save at least 10% to 15% of their pay, but if that feels out of reach, start wherever possible and try increasing contributions by a little each year to see big changes in total savings over time," Lincoln Financial said. "Remember to save up to the employer match if offered."
Invest in a guaranteed income plan
Investing in an annuity is one way to generate guaranteed monthly income for pre-retirees that's protected and can last a lifetime, according to Lincoln Financial.
"Taxes on the gains aren't paid until the money is withdrawn, so interest can be earned on the money that would have otherwise been paid in taxes," Lincoln Financial said. "If people are in a lower tax bracket during retirement, that means potentially paying less in taxes overall on the same amount of money."
If you're struggling to save for retirement in today's economy, you could consider paying down high-interest debt with a personal loan at a lower interest rate, which can help you lower your monthly payments. Visit Credible to compare options from multiple lenders and choose the one that's the best for you.
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