Legal Ways to Reduce Your Tax Bill

  • July 18, 2016
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In life, death is a certain thing. Similarly, taxes are a certainty in the businesses. A tax is imposed on net taxable income by the federal, most states and some local governments, in the United States. Income tax can be forced on individuals, estates, corporations and trusts. The rate of tax is fixed; that means the tax rates on higher amount of income is higher, and on a lower amount of income is lower. However, some states and localities impose an income tax at a graduated rate, and some at a flat rate on all taxable income. US taxes are lower than the other developed countries, as at all levels of government represented 24% of gross domestic product compared with 34% of GDP for the 34 member countries of the organization for Economic Co-operation and Development in the year 2012.

As you know, the more money you make, the more taxes you will pay. That is why, it is very important to arrange your financial affairs so as to minimize your taxes. You can reduce your income, increase your deductions, and take advantage of tax credits. A tax professional in the Portland, Carol W. Thompson says, “Planning is the key to taxes. If you don’t plan, then you’re not going to get anywhere.”

Although, it is truth that taxes are unavoidable and illegal to stop, you have several chances to reduce with proper planning. Make a mistake and your tax bill grows. That’s why, you need to be aware of which taxes your business needs to pay, how much in taxes you owe, and when you need to file. Lets discuss some amazing ways to reduce your tax bill in an effective manner.

  • The one of the most important tax reduction tool is Retirement account contributions, as they serve two purposes. This strategy can allow you to deduct from your taxable income the amount paid into the retirement account. These funds also grow tax-free until retirement and can secure your retirement with early planning.
  • Contribute to a health savings account is the other way to reduce your tax bill, with high-deductible medical plan. The contribution from your income for medical expenses can roll over indefinitely and grow tax-free.
  • Business or other vacation trips can be combined and reduce vacation costs by deducting the percent of the expenses spent on business from the total costs. This could include everything from your transportation to the hotel bills.
  • In some cases, self-employed individuals are eligible for scores of tax deductions for business-related vehicle mileage, percent of home Internet charges used for business, professional publications, memberships, business-related travel, office supplies and any expenses incurred to run your business.
  • Charitable reduction is the other important way, as it’s made by payroll deduction, cash, checks and donation of goods & clothing is also deductible. These deductions add up and are often overlooked.
  • Pay child care bills with pre-tax dollars to get excellent reimbursement if your employer offers benefits like a dependent care assistance plan. This technique can save you one-third or more cost that you pay as tax.
  • As a dependent of an adult child, here is a possibility of the tax break. You can apply for the student loan for your children’s further studies. The cost that you imposed for your child’s study can also allow you to reduce your tax charges.
  • A tax credit is available for homeowners who have installed alternative energy equipment. They can claim some %age of what they spent on qualifying property, such as solar energy systems, geothermal heat pumps and wind turbines, including labor costs.