Retirement Contributions

• Contributing to your 401(k) or to an IRA can reduce the amount you pay in taxes each year. However, the Roth 401(k) or Roth IRA contributions are taxable. The advantage of the Roth accounts is that the money grows tax-free, meaning you will not be taxed when you withdraw from those accounts during retirement. Saving taxes now may cost you more in the future. You might want to balance your contributions between traditional and Roth accounts to find the best balance for you in the long term.
  
  

Flexible Spending Accounts

• A flexible spending account is available through personnel departments. You can set up one for day-care expenses and one for health-related expenses. You will need to estimate how much you will use during the year and then divide it by 12 to see how much you want to contribute each month. Any amount that you do not use during the year will expire, and you will lose the money, so you do not want to over-estimate the costs associated with the account.
  
  

Health Insurance Programs

• You can decrease the amount you pay in taxes by paying for your health insurance through your work. The premium amount you pay each month or week will be deducted from your paycheck before taxes and reduce your annual tax amount. You might come out even if you compare the premium of your lower cost plan to the higher cost plan and then see how it affects your taxes.
  
  

Withhold the Correct Amount

• The IRS has a withholdings calculator you can use to determine the right number to claim on your taxes each year. This amount will change as your family changes and as you receive raises. Each year you should check to see if you need to make any necessary adjustments to your withholdings for the next year. This will prevent you from over withholding and owing taxes at the end of the year, but it will also increase your paycheck by preventing you from withholding too little during the year.