Two things are constant in life – death, and taxes. No matter how long you live, you just have to pay. But the good news is the latter can be worked around a little bit.
I know many people who pay less than the current federal income tax brackets. I mean, folks whose tax fees go below 10%. And they still get away with it.
You probably think they did that illegally, but you’ll be shocked to hear they went about it legally.
You, too, can get smart about your taxes. You just have to know-how. In this post, I’m going to show you how.
- Start a retirement account
I know this may sound a little bit cliché, but the truth is retirement accounts are still one of the best ways to reduce tax payments.
When you stash money away in 401(k) and IRA accounts, what you’re doing is telling the government not to touch a part of your earnings. So, they deduct your retirement contributions from your taxable income and tax what’s left after that.
In the end, depending on how much you choose to stash away in 401 (k) and IRA accounts, you would have significantly reduced the amount of federal tax you owe.
- Start a health savings account
Like retirement accounts, a health savings account can also be used to reduce the amount of tax you owe. In case you don’t know how this works, you can contact notaries near me for expert advice on how health-related tax deductions work. They’ll guide you on the right steps to take.
The government cares about your health. As such, when they see your health savings contributions, they’ll consider you for a deduction.
- Enjoy business-related deductions
One mistake many taxpayers make is not having a side gig. When you don’t have a side hustle, you deprive yourself of certain tax deduction opportunities.
For instance, taxpayers with businesses or side gigs often enjoy certain business-related deductions such as vehicle mileage, shipping, advertising, website fees, internet charges, professional publications, dues, memberships, travel, office supplies, etc.
The government believes you need to incur these expenses to run your business. So, when they tax you, they consider all the daily operational costs of your business (side hustle).
You can imagine the number of expenses involved in the day-to-day running of a business. Now imagine that you’re able to properly document each one and present it during your tax audit; how many deductions do you think you’ll enjoy?
- Enjoy deductions from your self-employment taxes
You should know by now that the government takes a 15.3% federal tax to cater to national medicare programs and Social Security.
To cater to this tax, enterprises, and firms usually pass a share of the burden to their workers so as to reduce the financial stress on the organization.
In contrast, self-employed folks have to cater to the entire thing all by themselves because they have no employees to share them with.
Thankfully, the government understands this discrepancy and makes up for it by offering self-employed people a 50% deduction on their personal income taxes.
- Claim home office deductions
This one applies to people who work from home. If you have a business you run from the comfort of your home; you should know that you’re qualified to apply for a home office deduction.
So, let’s say you live in a 3-bedroom flat and you’ve dedicated a whole room to your business operations. That means the business is contributing to one-third of the rent and utility expenses. When the time for tax comes, you can easily deduct one-third of rent and utility bills because that’s what it costs to run your business from home.
If you’re just hearing this for the first time, you might be asking yourself, ‘on what ground does this deduction hold?”
Well, it holds on the basis that if you rented an office space, you’d have to pay for the rent and cater to utility, both of which are considered for deduction during a business tax audit.
For the case under discussion, the same privilege is extended.
- Combine your vacations with business trips
When you go on a business trip, you’re qualified for something called business-related travel tax deductions. This caters to airfare, vehicle mileage, and any expenses incurred on the business trip.
In contrast, when regular individuals travel for vacations, the same privileges aren’t extended to them. But here is the good news.
If you have a business or a side gig, you can simply combine your vacation with a business trip and make it seem like you went on a business-related trip instead. This way, when the time for taxing comes, every income realized and expenses incurred during the period will be taxed as a business-related one. And as such, you get to enjoy the right deductions.
- Itemize State Sales Tax
It is a common practice for taxpayers to itemize their taxes and deductions. When you do this, it’s always good to include either the state income tax or state sales tax on the list.
For folks living in states where they aren’t required to pay income taxes, the state sales tax break makes the whole burden a little bit easier.
With this, taxpayers can claim deductions from almost all expenses, including major purchases like a house, yacht, property, etc.
- Make charitable donations
When you donate to organizations and individuals, you can also qualify for deductions. When we speak of donations, many people are quick to think of money, but that’s not all there’s to it. You can donate other stuff besides money.
And the beauty of it all is that these things count toward your general tax deductions.
- Leverage state and local tax deduction opportunities
There are opportunities for tax breaks at the state and local levels, just like federal taxes.
For instance, in New Jersey, you can deduct the cost of medical expenses exceeding 2% of your adjusted gross income. In New York City, where there are parking taxes for rented spaces, taxpayers can easily deduct almost half the fee simply by requesting an exemption.
By and large, find out with the appropriate local and state authorities to see what deduction privileges are available to you.