There are very few things in life that are completely inevitable no matter what you try to do but having to pay taxes are most certainly one of them. Everyone has to start paying them at some point or another in their lives. However, with a bit of the right sort of know-how and the right actions being taken, it is possible for you to noticeably reduce the amount that you pay on taxes every year. The following actions are 4 ways for you to lower your taxable income.
Increase the Tax Deductions You Use
Tax deductions are one of your absolute best friends when you want to lower your taxable income. They are one of the most commonly used methods by people in order to not have to cough up as much money to the government every year for taxes. You would be amazed at the kinds of things you can use to deduct the amount of taxes you have to pay. With the right knowledge of these deductions, you can save a truckload of money every year. You can use all kinds of things, ranging from (but certainly not limited to):
- Expenses for health care
- Personal property taxes (stuff like car registration fees)
- State and local taxes
- Job related expenses
- Investment related expenses
- Tax preparation fees
- Mortgage interest
- Gifts to charity (either monetary or physical items)
The three best tax deductions to go with for most people would be state taxes, gifts to charity, as well as mortgage interest.
Be Sure to Make Use of Tax Credits
Another one of the best ways to reduce how much money you are shelling out for tax payment every year is to use any and all tax credits that you can. Tax credits are an amount of money that can be subtracted from the amount of taxes that someone owes to the government. There are tax credits for all sorts of things, ranging from but not limited to:
- Earned Income Tax Credit
- American Opportunity Tax Credit
- Child and Dependent Care Credit
- Savers Credit
- Advanced Premium Tax Credit
- Lifetime Learning Credit
- Child Tax Credit
- Adoption Credit
- Energy Credits
- Credit for the Elderly or Disabled
One of the best and most used tax credits for people who might not be making a whole lot of money to begin with is the Earned Income Tax Credit. It is a credit that is meant to help lower to middle class households keep more money as long as they make less than a certain amount of money per year. The amount you may be able to get from it would vary depending on how much you are making, how many dependents you are claiming, etc. This credit can be worth up to $6,242.
Reduce Your Income
Another good way of saving money from paying taxes is to reduce your income. The less money you are making, the less money you will be taxed on. But, reduce your income? What do you mean? Who would want to do something like that? That is crazy talk! Insanity!
However, before you decide to go ahead and jump ship on this tip, just listen for a moment. Reducing your income does NOT mean taking a lesser paying job or making less money in general. No one on Earth would ever want to do that. However, there is a way to still make more money but not have it taxed by the government this year.
There are all kinds of useful ways for you to make adjustments to your gross income. By doing this, you can end up making less money every year on paper in a legal manner and in turn save quite a bit of actual money in the long run. Examples of reducing your income through adjusted gross income will include but are not limited to things like:
- 401(k) plan
- Traditional IRA
- Student loan interest
- Alimony paid
- Classroom related expenses
- Half of self-employment taxes that you pay
- Losses from sale or exchange or property
- Moving expenses
- Unreimbursed business expenses
- Healthcare savings account (HSA) deductions
Another way for you to pay less money in taxes (after everything is all said and done) is to use absolutely no tax credits whatsoever. While at first this method may seem rather counterintuitive, it may in the long run get you more money than you may have anticipated. You will likely end up paying more in taxes every paycheck, and although at first this will mean that you have less money to use on the important things in life, it means that come tax refund check time, you will be getting a noticeably larger refund than those who decided to opt for using tax credits instead. It is essentially a way of playing the long game instead of trying to keep all of your money right now.