“Nothing is certain except death and taxes”, this may be true at some point but not entirely true for taxes. Death is inevitable in every aspect but taxes aren’t. Learn in this guide, how to lower your taxes big time!
There are tricks you need to play to lower your taxes big time without breaking the law. These are steps that have been taken by many even high-income earners and they are very effective.
Before going on to how to lower your taxes, it’s cool if you first get to know the simple ways to avoid paying taxes without being declared wanted by the IRS.
How to Lower Your Taxes Big Time
Simple Ways to Avoid Paying Taxes Legally
1. Ensure you qualify for tax credits and make use of it
One of the many challenges with people when the tax credit is concerned is ignorance. Most people do not understand what tax credit is all about. A tax credit is a tax incentive that reduces the amount of tax you owe the government. Cool right?
The Internal Revenue Service (IRS) gives a whole lot of tax credits that cut across everything including your purchases. The best way to get the best off tax credit is by accessing all that you’ve bought within the space of one year to know if you are owed.
The number of tax credits available for persons is in five categories which include Education credits, Family tax credits, income and savings credits, Healthcare credits, Home ownership, and real estate credits.
2. Become a student
Another way of avoiding taxes legally is by taking advantage of credits or deductions as a student. Once you become a student, the government offers you credits and deductions, you will be allowed to choose one and run with it.
As a student, you can go for the American Opportunity Tax Credit which gives as high as $2,500 in tuition fees and other fees paid during the taxable year. You can also go for Lifetime Learning Credit. This one gives $2,000 off your education fee and other fees that relate to your academics, but you must understand that only one credit is available for you in a year.
How to Lower Your Taxes Big Time
This section offers you tricks on how to lower your taxes big time. Lowering your taxes is very possible, all you need do is follow the tips and also work with one who has grounded knowledge on taxes. This is even more important if you are a high-income earner.
1. Earn an income that doesn’t attract taxes
There are lots of ways to earn income that are tax-free, and your aim should be to earn more via these means. One of the many ways includes selling your house, saving up for the kid’s tuition fees, creating a health savings account and depositing in it, and also accepting health insurance.
2. Hold back your tax payment until later
This sounds like bad advice but you will marvel at how it helps to lower your tax. Read clearly, this doesn’t advise that you sweep your taxes under the table and totally ignore them. It is advised that you leave for a long while before paying, that way, you gain more.
3. Take advantage of your tax deduction
The thing about tax deduction is that more deduction equals less income tax. This means that for you to cut short the level of tax you pay, you must take advantage of tax deduction. If you are a business owner, you can deduct your business expenses including your traveling expenses.
As a taxpayer, you’re allowed to make use of either a standard deduction or the itemize deduction. Itemize deduction has proven to be the best but it isn’t available for high-income taxpayers.
4. Move your income to others
This is a tricky way of lowering your tax. If you are a high-income earner, you can reduce the taxes by moving your income to another person or person that earns lower. For instance, you can move them to your children. Your children are the best options because it is easier.
5. Your filling status matters
Your tax filing status determines to a large extent the amount of taxes you pay and so, you must take advantage of it as well. The filing status you choose will help the IRS fix you into a tax bracket, and that affects how they calculate your standard deduction and so, you must be careful with that.
High Income Tax Saving Strategies
Even as a high-income earner, there are strategies available to help you save your taxes. Below are a few strategies you should implement to get exactly what you want. They are:
1. Pile up your retirement benefits
Here is the secret that you might not be aware of. Taxable income is easily lowered if there are employer-based accounts such as 401(k) and 403(b) accounts. This is because any penny that is deposited in that account does not get taxed until you decide to withdraw from the account.
Now, the trick here is that if you pile up your retirement benefit until when you retire, you will be taxed very low compared to when you are still receiving paychecks. This is because, after retirement, you will fall under a lower tax bracket and will be charged lesser.
2. Utilize the Health Savings Account
Saving in a health savings account comes with benefit and also a disadvantage but the benefit seems bigger. This is available for you if you selected a high deductible plan and the highest you can contribute is $3,550 for a person and $7,100 for families.
The income you save in a health savings account is yours and can’t be taken away, but you must understand the process very well before going for it because it has some disadvantages that are manageable.
3. Put Your Inherited Real Estate Up for Sale
You will not be a loser if you do this. On the other hand, you will be gaining more. Just come with me.
If you inherited a property from your parents and you want to gain more without being taxed heavily by the government, then you must sell the property as soon as possible.
If you sell almost immediately, you won’t be taxed so much because the property recently moved to you from your parents but if you hold on to the property for a long time and want to sell later, you would have pilled up a tax that will rob you of the amount of gain you were supposed to make.
Other ways to Lower Taxable Income – How Can Taxes Be Lowered?
There are other ways to lower taxes but before going on with any of them, ensure that you work with a tax professional especially if you are a high-income earner.
1. Claim Business Deductions with Your Side Business
Your side business can help you with your taxes. As a self-employed individual, you’re eligible for a tax deduction and this means that you can actually make use of your side hustle to lower your tax.
The available business deduction is advertising, dues, business trips, shipping, and so on. You can make use of these to solve the problem of heavy tax but to be on the safer side, work with a tax professional who knows the DOs and DONTs.
2. Make Charitable Donations
This is a strategy many high-income earners utilize to slash their taxes. All you need to do is to avoid itemizing because the Coronavirus Aid, Relief, and Economic Security Act gives those that do not itemize the grace of deducting a cash donation of about $300.
Taxes can come so heavily that you will want to just overlook them and focus on what seems important to you. This reaction might look like the best to you until the IRS visits over the taxes you’re yet to pay.
The option you have left is avoiding the taxes legally or learning how to lower them big time.
Make use of the strategies above to enjoy a low tax rate but ensure you work with a professional accountant.
