3 Tips for Reducing Your Taxes
Taxes are a fact of life, what you pay to local, state and federal governments to provide services that you need. Such taxes include sales taxes on your purchases, property taxes on your real estate and income taxes on what you make. Add these taxes up and you may be spending far more that what you imagine for government services. You can reduce your overall tax burden by employing one or more of the following tips.
1. Take advantage of deductibles. On both the state and federal levels, you may be able to reduce your tax burden by claiming additional deductibles. The larger your deductibles, the lower your tax burden.
Such deductibles can include the interest you pay on your mortgage, the cost of maintaining a car for your business, your home office and business-related travel expenses not covered by your job. There are a number of other deductions you may be able to take including your out-of-pocket charitable contributions, your reinvested dividends and your job-hunting costs notes Kiplinger.
2. Contribute more to your retirement accounts. If you have a retirement account such as a Roth IRA, a 401(k) or a 403(b) plan, then increase your contributions to each one to defer your tax payments to another time. Certainly, you will have less money available per pay period, but that also means you could pay fewer taxes.
Retirement plans typically allow holders of such accounts to avoid paying income tax on such funds until retirement. Instead of paying taxes on money you earn now when you’re in a higher tax bracket, you’ll pay taxes when you’re ready to tap these funds, such as when you’re no longer working. You’ll defer your taxes and most likely will pay them at a lower tax rate.
3. Avoid sales taxes. It is true that you can avoid paying sales tax or at least pay a lower rate. In some states, counties assess an additional tax on top of the state tax, meaning businesses in those locations may add one-quarter to one-half of one percent to the state tax. Those differences are small with minor purchases, but add up with big purchases, therefore consider shopping elsewhere for what you need.
You may be able to save money on what you buy by making purchases online. If your retailer does not collect sales tax for your state, you can avoid that tax completely. This option is only worth it to you if the cost of your item comes in lower than what a local store charges and shipping is free or comes in at a nominal amount. Just know that some states, such as California, have closed this loophole.
You can save money on your taxes by itemizing your deductions on your federal tax returns, declaring interest payments on student loans, by writing off your capital losses and by taking deductions on charitable contributions. Keep a good record of your contributions and other transactions, including receipts, statements and other data that supports your deductions. You may not need to furnish this information to the IRS, but you may need it if you are ever audited.
See Also — 6 Ways Kids Help Reduce Your Taxes