Taxes can be burdensome, especially if you are unable to pay. You can trim down taxes using a number of tax strategies, which can best be realized with high levels of tax knowledge. Some of the strategies to lower or even evade paying taxes are discussed below:
Contribute to an IRA: Your retirement should be secured at all times, and when you invest in a 401k, you can tremendously bring down your taxable Adjusted Gross Income. This means that the more you invest into your 401K, the more likely you can cut on the taxes you owe the IRS. The deposited amount in the IRA grows year after year for which you don’t have to pay taxes. Ultimately, upon your retirement, you will be eligible to withdraw the net amount in the IRA at a lower income tax bracket.
Don’t Pay Your Student Loans Too Quickly: Do you have an education loan? Not paying it off immediately may benefit your taxes. Yes, conventional loans like credit card debts with no tax benefits must be paid off as soon as possible. But in this case, paying the interest of the student loan reduces the gross income that is taxable by the IRS.
Purchasing A House: Everyone wants a home and the IRS is willing to support you in realizing this dream. An investment made on a house can help you deduct taxes payable to the government. The loan interests paid for the house is considered as mortgage interest, which is tax exempt. Every year you pay interest, a large chunk of tax may be evaded. The amount paid for points are also charged on mortgage and is completely beneficial for mortgage related deductions.
Selection of Marital Status: If you are married, you have 2 options while filing tax returns; either married filing jointly or married filing separately. Single parents can file as head of households. The marital status plays a major role in determining the tax rate and standard deduction rate, which is higher for a single parent compared to couples.
Take Classes: College classes qualify you for the Lifetime Learning Credit. And if your income is beyond the range for the credit, you may have to opt for deductions in tuition and other fees.
Philanthropy: Each time you make a donation, save the receipts if you plan to claim a tax deduction. Also, you may keep records of health-related expenses and work related expenses.
Old Paid Tax Returns: In case you missed out of tax refunds from missed deductions, you have up to three years to amend your 1040 and claim a redund by filing a Form 1040X.
Talk to a Tax Pro: A professional will help you with right suggestion and offer best deals for maximum tax deductions, lessen tax fees, and also help you if you intend to claim tax deductions.
Ensure you choose a right tax attorney to do your taxes or use right tax prep software to prepare the taxes and e-file the tax returns. The IRS allows online filing of tax returns at no extra cost. Note that your economical progress will impact on your taxes. You may end up paying more taxes than you should if you don’t try to identify all possible tax saving options.