How to Cut Your Income Taxes in Half
Paying high income taxes is something most individuals greatly dislike. We all know that these taxes are eventually returned to general public in form of various facilities and benefits, yet many people are reluctant to spend hefty amounts of money to the federal tax department. There are many ways to reduce your payable income tax in a legitimate manner. However, you must keep in mind that adopting illegal ways of tax evasion is a punishable crime all over the world and you must stick to the legitimate means if you desire to cut down your income tax amount.
Instructions
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You simply need to reduce your Adjusted Gross Income (AGI) if you desire to cut down the payable income tax. AGI is the actual taxable income and by lowering it, you can easily cut down the gross amount of tax you have to pay to the state.
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The easiest way to lower down your AGI is to contribute reasonable amount of money to any retirement program. You can opt for a 401(k) or other retirement plans offered by your company and you can deduct this amount from your total earnings.
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The federal tax department has provided a list of other expenses which you can deduct from your gross income and the tax percentage will be levied upon the remainder. However, for availing any of the option from this list, you must qualify for it or otherwise, you shall be held guilty of misleading the authorities and can be penalised for it. The list of these adjustable expenses is:
- Classroom expenses
- IRA reduction
- Moving expense
- Qualified performing artists and other professions
- Self-employment tax deduction
- SEP deduction
- Self-employment health insurance
- Student loan interest
- Tuition and fee deduction
- Health savings account deduction
- Early withdrawal penalty
- Alimony paid
- Domestic Production Activities Deduction
This list can be found on the Form 1040 and you can use these items to cut down your AGI. -
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If you haven’t purchased your first house until now, you better do it right away. The 2009 tax reforms introduced credit for the first time house buyers. You can purchase your first house and the sum of money will be refundable on your tax return.
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Another way to reduce your AGI is to deduct any interest payment made on the mortgage of your house from your gross income. The real state taxes paid to the county are also adjustable for the calculation of AGI.
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Besides the listed ones, there are also some other tax credits available, such as buying a new hybrid car or truck, Earned Income Tax Credit and the Child Tax Credit, and you can avail these options to significantly reduce your payable income tax amount.
