Top 7 Ways to Reduce Income Taxes
Are you worried about your taxes? Do you think you pay more taxes than you should? Well, henceforth, you need not worry about income tax. Here are a few tips which will save you both from taxing your mind and paying high taxes too.
Pay enough tax to save on tax:
Make sure that you pay enough taxes to get rid of penalties. If you fail to pay at least 90% of your current year’s taxes, or 100% of your last year’s tax liability, you will be charged with interest and penalty.
Invest in home to save on tax:
Buy a house or any real estate property. You can include the mortgage interest and property tax in your deductions.
Opt for company retirement plans:
You can also participate in company retirement plans. Every dollar of your contribution will save your taxes and reduce your tax liability. One can enroll into the flexible spending account of the company. Medical as well as other expenses can be taken care of by keeping some money aside.
Keep your house for two years, save tax while selling:
Home sale exclusion is one of the best tax breaks available today. You can exclude up to $250000 of profit on the sale of your home from your taxable income. But to qualify for the exclusion, you must have owned and lived in your home for at least two years in your house.
Planning of your retirement plans:
If you think your retirement plan distribution will push you into a higher tax bracket, think about removing money out of taxable investments. Also, the 59 and one half age limit needs to be kept in mind, as if you take withdrawals before this age, it can result in additional penalties, apart from the taxes.
Timely sale of investments:
If you earn more than you expected, you can sell some of your losers and reduce your tax liability. While selling mutual funds, you can save your tax outgo just by selling them before the year end distributions. Thus you can save on capital gains tax or dividend tax. Your tax efficient investments can be allocated to taxable accounts, and your non-performing investments can be allocated to retirement accounts, thereby reducing your overall tax burden.
Spend sensibly to save on tax:
Some kinds of expenses must be more than a certain minimum amount before the can be deducted. For example, your medical expenses must exceed 7.5% of your adjusted gross income. As for miscellaneous expenses, they should exceed 2% of your adjusted gross income.
One must be aware of the tax deductions as well as credits applicable to one’s income, and should plan accordingly for taxable events. Also, one should always ask for help. One should not be afraid to consult tax consultants or professionals. It is always wise to consult these experienced professionals, as the benefits you derive from them are far more than the cost of hiring them.
If you examine your saving as well as spending patterns, you may find some more ways of saving on taxes and fine tuning your budget. As far as tax matters go, it’s always beneficial to maintain proper records of spending and investments.