How to Minimize Your Taxes
Everyone wants to earn healthy but by doing so, you will also need to pay more in taxes. While paying taxes is unavoidable, knowing how to reduce your gross earnings will considerably reduce your taxable income.
Instructions
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1
Reducing gross income
Although it sounds inappropriate, but reducing your income will allow you to pay less in taxes. Commonly, your AGI or Adjusted Gross Income is taken into account to determine the amount you pay in taxes. The easiest way to reduce your gross income is by contributing in a retirement plan or a 401(k), or a tradition IRA plan. This could be done at your workplace, or pursued on your own. Whichever way you do it, ultimately you will be contributing more money to the plan and earning less in your wages. It will lead to a reduction on your tax status where you will have saved sufficient funds for the future.
This is an important exercise as will considerably keep in check other financial factors such as the amount you will pay to mortgage lenders, banks etc. Moreover, you can apply for financial student aid etc. -
2
Tax credit
You can easily obtain a tax credit which reduces your taxes for dollar to dollar. You can get education tax credit, child care credit and even for home and vehicle maintenance, where installing security and protective measures at your place, or buying hybrid cars will allow you to take advantage of tax credit. One can further pursue Hope Credit and Lifetime Learning Credit for educational purposes. However, you will need to enroll yourself in a program to gain the benefits. -
3
Income splitting
You can save money by shifting the money in other low-bracket income accounts such as your child or any other family member. However, most states have tightened the procedures so make sure that you know the law. -
4
Increasing your deduction
Another sought-out way is to increase your tax deductions. The items will range from personal – property, mortgage, and charity – to business related. Take the higher of either your standard or itemized deduction to devise your gross income which is subject to tax. -
5
Give to charity
One can easily reduce the amount of taxes paid by giving back some of the earning to the community. You need not to give complete financial backing but can further give out household items such as toys, clothes, food etc.
