As a responsible citizen, it’s your duty to pay your taxes. However, the taxes you pay are not usually fixed, depending on how much you make. Rather, your taxes will always be obtained from your “taxable income,” which can be reduced in one way or another and thereby lowering your tax bill quite significantly. Here are a few ways to lower your tax bill.
1. Contribute to your IRA
Financial advisors will often ask you to make regular contributions to your individual retirement account. Not only are you saving for your retirement this way, but the money you stash there basically becomes a write-off and will not require to be itemized. It’s important to note, however, that these write-offs are tax-deferred and not exempt. So you will have to pay these taxes at one point.
2. Use your spending power.
Another way to reduce your gross income and consequently reduce your tax bill is by spending money on flexible spending plans. What happens here is that when you have a flexible spending plan, your employer will deduct a certain amount every month, which is tax-free. These funds are placed into an account that will then pay for items like health insurance, medical expenses, dependent care, and so forth (things that you would have paid for anyway). These dollars are deducted from your earnings, which can reduce your tax bill a great deal.
3. Being charitable
Giving to charity organizations is another good way to reduce your tax bill. Here you don’t always have to write a check to your favorite cause. You can decide to be more proactive and buy them what they need. This can be in the form of books, clothes, toys, machinery, household items, and so forth. The cost of these items is deductible and can reduce your tax bill. However, if you are volunteering your time only, it is not deductible; but if you are representing a charity at an event or something similar, it can count.
4. Use your 401(k) account.
Not to be confused with the IRA, contributions to your 401(k) account aren’t taxed. This has made them a popular choice for people who want to reduce their tax bills. As of 2019, you can send up to $19,000 annually into the account, which is very exciting! Unlike the IRAs, 401(k)s are employer-based and therefore have an advantage where employers can match contributions.
5. Track your medical expenses
Medical expenses can be quite unpredictable, depending on the illness. If you have spent quite a bit on your medical expenses, you might be able to get some deductions for what you spent. Essentially, you can get a deduction for medical expenses that are more than 7.5% of the adjusted gross income for that year. For instance, if you have a gross income of $40,000, medical expenses accrued past $3,000 will be deducted. Therefore keeping track of your medical expenses can go a long way in reducing the tax bill
While the tax season can be stressful and confusing, it doesn’t have to be that way for you. Mostly, if you have the right team working for you, it will all be a breeze. An income tax calculator such as taxfyle can assist in helping you structure your finances and get to know exactly how much you owe the federal government.