Few things are as painful as seeing money from your hard-earned paychecks go into taxes. But yet, it’s a pain that we have to endure every year during tax season. As Mark Twain once said, “nothing in life is certain but death and taxes.”
Although there will never be a way for you to legally avoid taxes altogether, there are several things that you can do to reduce your tax liability while staying on the right side of the IRS’s graces.
With that in mind, here are seven tips on how to save money on taxes that you can start implementing right now.
Increase Retirement Contributions
One of the best ways to reduce your tax liability is to increase your retirement contributions. By putting your money in a Roth IRA or 401(k), you can reduce the amount of income that is liable for taxes. What’s more, your company may even offer 401(k) matching, wherein they will match a certain percentage of the money that you put into your 401(k). This is essentially free money it’s a win-win.
Start an HSA
An HSA, or health savings account, is a fund of money that you put away for a rainy day in case of a significant health emergency. Like contributions to your retirement funds, HSA contributions are also tax-deductible. Once you reach maximums on your retirement contributions, it’s time to turn to your HSA.
Remember All Tax Credits
Tax credits are where it’s at — and for good reason. They don’t function the same way as deductions, which reduces the amount of money that is liable for taxation. Instead, these are applied directly as credits directly toward your taxes. Common tax credits include solar panel installation and related expenses so make sure that you’ve got a comprehensive list of all of the expenditures you made this year that may be able to function as a tax credit.
Another way to reduce your tax liability is to increase charitable giving. The amount of money that you give will be tax-deductible.
Change Your Business’s Legal Structure
If your income is due to a self-owned business, then changing your business’s legal structure may reduce your tax liability. For instance, C corporations are double-taxed both at the business level as well as at the personal income level. Try using a limited liability company (LLC) instead.
Purchase Real Estate
Payments made on real estate purchases, like your home, are also tax-deductible. If you’re looking for a way to increase wealth while reducing tax liability, purchasing real estate is a sure-fire way to do so.
Consult a Tax Professional
Last but not least, consider consulting a tax professional to get advice on how to reduce your taxes this year. These folks have significant experience finding all the loopholes to reduce taxes, so chances are that they’ll be able to do the same for you. of course, there are many consultants to choose from; for example, those who live in Sacramento may want to contact Resolve Tax for additional information.
How to Save Money on Taxes, Made Simple
So there you have it: saving money on taxes really is simple if you know where to start. With this knowledge under your belt, you should be able to significantly reduce your tax liability this year.
Photo Credit: stock photo