12 Different Ways to Reduce Your Tax Bill This Year
Tackling your tax bill can be a daunting task, but with proper planning, you can considerably reduce the amount owed this year. By exploring various avenues, from maximizing deductions to investing in retirement savings, you’ll unlock multiple ways to ease your financial burden.
12 Ways to Reduce Your Personal and Business Tax Bill
Whether you want to reduce your personal tax bill, business tax bill, or both, you have plenty of options to explore. Here are 12 ways to reduce your personal and business tax bill this year.
Maximize Tax Deductions
One essential way to reduce your tax bill this year is by maximizing tax deductions. Review all deductible expenses and ensure you claim them when filing your return. For instance, business vehicle and subscription write-offs are often overlooked but could save you thousands of dollars.
Utilize Tax Credits
Different from deductions, tax credits reduce the actual amount of taxes owed directly. Common credits include the General Business Credit, Investment Credit, and Work Opportunity Credit. Research which tax credits are applicable to your situation, such as being a parent or student.
Adjust Your Withholdings
Another tip involves adjusting the amount withheld from your paycheck for taxes throughout the year. Both W-4 employees and business owners can do this. If you’re a business entity, you should limit the amount of money you take out of your business to save on personal taxes.
Invest in Retirement Savings
Contributions made towards retirement savings like 401(k)s and IRAs can be deducted from your taxable income, significantly reducing it. Business owners can also save on taxes by matching employee-based retirement saving contributions as long as they don’t go overboard.
Use Health Savings Accounts (HSAs)
If you qualify for an HSA based on having a high-deductible healthcare plan, contributing pre-tax dollars helps save both on medical expenditures and overall tax bills alike. This deduction can be great for business owners, even though it lowers their personal income tax filing amount.
Consider Home Ownership Benefits
As a homeowner, various deductions can be claimed, such as mortgage interest payments when itemizing taxes, ultimately reducing one’s tax liability annually. If you’re a freelancer and work from home, you can deduct your mortgage, utility payments, insurance, and more.
Donate To Charitable Causes
If you want to give back to your community and reduce your tax bill at the same time, consider giving to charity. You’ll be able to help worthy causes and increase your itemized deductions, giving you another means of lowering taxable income and minimizing your due taxes this year.
Keep Accurate Records
Meticulous record-keeping will help identify qualifying expenses easier while avoiding errors when tallying them up at year-end during filings. And if a discrepancy does occur or you get audited, you’ll have the information on hand to avoid fees, penalties, and bills issued by the IRS.
Capitalize on Loss Harvesting
If you have investments that have decreased in value, consider selling those assets to offset gains made during the year. This strategy can help lower your overall taxable income, especially if the captain losses were short-term, providing another avenue towards reducing tax liabilities.
Seek Professional Assistance
Hiring a tax professional can provide personalized guidance and expertise in navigating complex taxation matters. Not only will this help you get your documents together ahead of tax time, but it’ll also help you reduce your tax bill, maintain compliance, and avoid any late tax fees.
Utilize Childcare and Education Benefits
If you pay for childcare or education expenses, know that there are potentially tax-saving benefits available. The Child and Dependent Care Credit offers partial relief for these costs, while the American Opportunity Tax Credit (AOTC) can be claimed if you’re a student or support one.
Choose the Right Filing Status
Make sure to review your filing status carefully, as it can significantly impact your tax owed. For example, those who qualify may benefit from filing as head of household rather than single status. Check your business entity and IRS tax filing status for the exact same reasons.
Don’t let tax season overwhelm you. With these 12 effective strategies in hand, you can take control of your financial situation and reduce this year’s tax bill significantly. Remember that even small changes can amount to huge savings and put more money back in your pocket.