Filing your taxes is never a fun moment, but there are ways to minimize what you pay and help improve your financial health. If you’re looking for smart ways to reduce taxable income, here is some advice on how to do it.
1. Use tax credits.
If you are a low to moderate-income taxpayer, you may be able to qualify for the earned income tax credit. If you are making less than $50,000 a year, investigate this instant credit that can save you thousands of dollars and will come directly from the tax that you owe.
2. Contribute to tax-sheltered retirement funds provided by your employer
If your employer allows you to get your take-home pay after subtracting contributions to retirement funds, then take advantage of this option. This is one way to lower your taxable income, while also receiving the benefit of future security. In addition, if your employer offers a matching contribution, you can save even more tax-free
3. Set up a Keogh Fund or Individual Retirement Account (IRA)
If you contribute funds to these accounts, they do not count as taxable income. You can also fund a Roth IRA for a relative so that they can benefit from the tax-free growth.
4. Contribute to an HSA
If your employer allows you to contribute to a medical health savings account (HSA), it is a good idea to do so. These plans will lower your taxable salary, diverting some of your original funds to pay for future medical expenses.
5. Don't forget your charitable contributions.
Make sure to keep all receipts showing any type of funds used for charity, including purchases that you make to benefit a charitable organization. You can add these costs up alongside any direct cash contributions.