Saving money is a challenge for many Americans. You can reduce your expenses by skipping your morning latte but don’t you wish there was more you could do more without depriving yourself? Well good news, there is! Many Americans fail to realize that you can actually save money by taking steps to reduce your taxes. Reducing the amount of tax that you pay will leave you with more money in your pocket. It’s a great way to add more money to your piggy bank without sacrificing anything.
Saving money does not have to be an uncomfortable experience. By reducing your income tax you can save money without going to any extremes.
Here are the Seven Steps to Save Money That You Aren’t Using.
1. Earn as Much Tax Free Income as Possible. A great way to get start reducing your taxes is to start earning as much tax free income as possible. You can do this by selling your house or contributing to your child’s education. You can also also start investing in municipal bonds or contributing to a tax free health saving account. You can also earn tax free income by setting up investments to give to your children. Your employer may also offer other tax free benefits you should be taking advantage of such as health insurance.
2. Take Advantage of Tax Credits. Another great way to reduce your taxes is to acquire a tax credit. Taking advantage of tax credits will help reduce your taxes. New tax credits are added every year so it is definitely worth looking into to see if you qualify for any of them. They have tax credits for things such as home energy improvements, education and childcare. Adding these credits is a great way to reduce your taxes and keep your money in your bank account.
3. Try Deferring Your Taxes. Deferring your taxes is another great tip to reduce income tax. While you will probably have to pay tax on your taxable income sooner or later it is usually better to wait until later. If you can defer your tax payment to a later year it is like getting a loan for free. An example of this would to delay getting a bonus from your employer until the following year. You can also invest in retirement accounts to avoid paying taxes.
4. Be Sure to Maximize Your Deductions. Taking advantage of tax deductions are a no-brainer for someone who wants to reduce their taxes. You will pay less taxes the more deductions you have. Small business owners can deduct all their business expenses such as for travel, office supplies or operating expenses. Every tax payer is also entitled to a standard deduction or they can itemize their deductions. Examples of this would be home mortgage interest tax, property tax, contributions made to charity, as well as state income tax.
5. Try To Reduce Your Tax Rate. Rate for federal income tax can be anywhere from zero to almost forty percent. You can reap the benefits of a lower federal tax rate if you gain income from a type of long term investment such as a stock, a real estate property or bond. Your earnings from these investments can be taxed at the lowest capital gains rates which are far lower than the federal state tax ones
6. Shift Your Earnings To Another. A person in a higher tax bracket can benefit greatly from shifting their income to someone in a lower tax bracket. A common example of this is shifting your income to your children. This is normally called income splitting or income shifting.
7. Take Advantage Of Filing Status. There are few people that realize how how filing status impacts your taxes. Your filing status is what determines what tax bracket you will be placed in. Take advantage of the fact that you have a choice in your status. Your filing status is also what is used to calculate your deduction.
Utilizing these steps will ensure you are not overpaying the IRS like many other Americans. Any one can use these simple steps and save money. Being knowledgeable about taxes and how to file is a great and painless way to save money without any compromises.