5 Ways to Lower Your New York State Tax Bill

Ah, New York, the Empire State: home to the Big Apple, cascading waterfalls, and, not so proudly, the highest taxes in the country. Whether you’re a city dweller who shuns taxis or a country dweller who enjoys tranquil scenery, one thing that unites all New Yorkers is the drive to lower pesky taxes.

Unlike other states that boast no income tax or offer generous deductions, New York’s combined state and city income taxes, high property taxes, and other levies tend to drain more of your bank account. Let’s say financial planning is a bit more difficult.

But don’t be afraid! With a little strategy and a little know-how, you can turn the situation in your favor. Let’s take a look at five more powerful strategies that can make your tax season a little brighter.

1. Donate to retirement account

Putting money away in a retirement account like a 401(k) or IRA is like killing two birds with one stone. It helps secure your retirement and reduce your taxable income. In 2023, the IRS will allow you to contribute up to $19,500 to a 401(k) plan, plus an additional $6,500 in supplemental contributions if you are age 50 or older.

This can reduce your taxable income dollar for dollar. In New York taxes, where state income tax rates can reach up to 10.9%, lowering your taxable income can result in significant savings. Don’t forget about IRA contributions, which can reduce your taxable income, although limits vary depending on your tax status and income.

2. Harness the power of a 529 college savings plan

New York’s 529 college savings plan isn’t just a vessel for your educational dreams. It’s also a tax-saving power plant. Contributing to a New York 529 plan can reduce your New York state taxable income by up to $10,000 for married couples filing joint returns and up to $5,000 for all other filers. The benefits of this plan don’t end there. Earnings grow federally tax-deferred, and withdrawals for qualified education expenses are tax-free. This is especially advantageous in New York, where all deductions are reflected in the state’s high tax rate.

3. Itemized deductions

Although the federal standard deduction has become more attractive to many taxpayers, New Yorkers have a unique incentive to itemize their SALT (state and local tax) deductions. It’s up to $10,000 at the federal level, but itemizing allows you to deduct significant state and local taxes, mortgage interest, and charitable contributions.

With New York’s high income and property taxes, itemizing can be a game-changer and potentially save you thousands of dollars in taxable income. Catch? It requires careful record keeping and a bit of legwork. But the cost savings may be worth the effort.

4. Take advantage of tax deductions

New York offers a variety of tax credits designed to directly reduce your tax bill. From the child and dependent care credit, which provides up to $3,000 per qualifying individual, to the college tuition credit, which provides up to $400 per student, these credits can provide significant relief. Unlike tax credits, which reduce the amount of taxable income, credits reduce your tax bill dollar for dollar.

Finding available credits can be complicated, but looking at them closely can lead to significant savings, and there is a noticeable difference in how New York’s tax laws affect your finances compared to other states. Tax software can help you determine if you qualify, as can a tax professional.

5. Invest in real estate

The New York real estate market is lucrative, but it also comes with tax advantages. Property owners can deduct property taxes and mortgage interest on their state tax returns, similar to the federal deduction.

For those considering a rental property, costs such as repairs, maintenance, depreciation, etc. can offset rental income, reducing taxable income. Given New York’s high real estate values ​​and taxes, these deductions and the potential for income through appreciation or rentals can make real estate investing a strategic move for tax-savvy individuals.

Saving money in a state as diverse and tax complex as New York requires strategy, timing and a keen eye for detail. By utilizing these five strategies, you’re not just saving money, you’re investing in your future, your education, and even your part of New York.

The key to maximizing these benefits lies in a customized plan and, when in doubt, consulting a tax professional who can navigate New York’s tax maze with you.

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