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. Also, learn how to boost your finances by generating a passive income.
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.
GENERATE A PASSIVE INCOME
If your goal is to win some extra money but you are not available to apply for an extra job, then there's another option you may want to learn a bit more about: passive income. But first, what does passive income refer to? It's an extra income you can get on a frequent basis by doing little to no work at all! However, you should always bear in mind that as it's a passive type of job, it will probably have a flat return.
Take a look at some of the best options to earn a passive income:
1. Invest in Real Estate
There is a new option available to invest in Real Estate properties that can help you obtain a passive income: Crowdfunding. This way, you can become a partial investor in a larger deal. This process to fund real estate projects is becoming more and more popular in the US and allows investors to join the deal by placing relatively small amounts of money.
2. Dividend-Paying Stocks
Investing in dividend-paying stocks is also a way to generate passive income. Although your financial advisor may encourage you to reinvest your dividends, you also can get the dividends sent to your bank account and withdraw the profit. The key to investing in dividends is to find a company the market considers solid, which has no debt and plenty of cash.
3. Peer-to-Peer lending
Also known as P2P, this method is a way to borrow from someone who will loan you the money at a competitive rate instead of going to a bank. Investors in P2P lending find this as a source of passive income. If you become an investor, you can lend small amounts of money to several borrowers and receive competitive rates of return.
4. Sell photos to stock companies
If photography is your hobby, then it's time you use your skills to generate a passive income. You can sell your photographs as stock photos to sites like Getty Images or iStock Photo. So, analyze the available photo categories and contact the stock companies to sell your impressive photos!
5. Rent a room in your home
Having a vacant room in your home can be another way to earn a passive income! Although this option may require a little more work, it can be a successful method. If you are interested, you can take a look at the terms & conditions of rental sites, like Airbnb and VRBO. You will have to make sure that the room is comfortable and analyze if it will not bother your everyday life to have a stranger living in your home for a short period of time. Also, if you don't own the property, you should consider renting your room while you are on vacation or have to travel for work.