Cutting taxes is essential for a lot of people. Not everyone can afford the huge tax money that the government cut against the facilities it provides. However, taxes are important. Frauds and corruption in tax money is not acceptable at any cost. So talking about this, is there a legal way to cut the cost of tax? There might be. I have done a bit of research on the topic and have reached a conclusion. You can save a lot of taxes if you act smartly and manage your financial budget carefully. What does this actually mean? Do you have to live in debt? Should you reduce the luxuries and facilities from your life? No. This is surely not what I am talking about.
In this article, I will discuss what I have learned about taxes and how we can all cut our taxes short with a few tips and tricks. All you need to do is to keep your financial activities in a check and maintain your financial budget. Cutting the cost of taxes is one hell of a task. There is no doubt that you might have to do that don’t want to. At times, you have to defer your income to keep a check on the payable tax. But trust me, with a little effort and priorities, you can do it. Cutting taxes is important in today’s world. Inflation has already got better of us and because of the new tax laws, there is plenty at stake. Every low to a middle-income person find it extremely hard to meet their financial needs after paying taxes. And with the current economic situation, this is getting worse. So what exactly should be done to decrease the payable tax? Here are a few tips that can help you in decreasing the cost of tax. Read along, stay focused, and grab all the necessary information that you might need. Cut your taxes this financial year and live a better life. Check out these 5 tips for cutting taxes that might come handy this year.
- Defer your income:
This might sound a bit unlikeable but it is worth it. Income is always taxed in the year it is received. It is tough to defer your income and postpone the salary or all the hard work you have done, but trust me, this is one of the simplest and easiest ways of cutting taxes. This will be easy if you are a freelancer or self-employed. But for a salaried employee, this is difficult.
What is important to understand here is that it is only feasible if the tax will remain the same or maybe low down a bit in the next financial year. If the tax is on the higher side in the financial year, then you must skip this tip and move on to the next one.
- Increase your retirement plan:
Plan B for cutting taxes is more of a long term plan. Deduct money from your salary and add to your retirement plan. Reduce your taxable income and increase funds in your retirement plan. Achieve your 401(k) dream. Add as much as possible and there a good chance that you will be able to reduce your tax by a handsome percentage by the end of the year. So start saving some extra bucks for getting a perfect retired life and cut your tax. Talk about kill two birds with one stone.
- Contribute to an IRA:
This one was a bit hard for even me to digest, there are two kinds of IRAs (Individual Retirement Account). One is the traditional IRA and the other one is Roth IRA. IRA is just like a regular retirement account, however, it is an additional account that you can use for your benefit if you are looking for a long term financial support. Using an IRA, you can add up to $6000 per year in your post-retirement savings other than the 401(k) savings. This savings can later be used for any purpose. Money deducted in the IRA is non-taxable and thus it is a good way for you to save tax amount.
In the traditional IRA, the money is non-taxable as long as you keep the money in the account. The tax is only applicable once the money is withdrawn from the account. However, if either one of you or your spouse is insured, then I would recommend checking the deduction limits.
In Roth IRA, the money grows tax-free. The only tax that is applicable is one of the contributions. This is beneficial for longer term as the money remains tax-free even when it is withdrawn from the account.
- Save for college
One of the unpopular ways of cutting taxes is to let the state run your account. Start contributing in a 529 plan, which is a savings account dedicated to education. This type of account is either operated by the state itself or by the educational institution. You might be able to save a few bucks and cut your taxes short if you are regularly contributing to this account. However, this will not affect your federal tax in any way. You have to pay the federal income tax.
- Charity is the best solution:
Charity not only saves your soul but also cut your taxes. Charitable deductions are tax-free. Charity is also one of the most feasible, simplest, and most common method of cutting taxes. It also helps you in keeping your financial budget. Do as much charity as you can in the later part of the year, this will help you in deducting huge sums of money from tax.
Here in this article, I have only included 5 tips for cutting taxes. It depends on you, however, whatever method suits you. Just keep these handy tips in mind and decrease your taxable amount this year. There are many other ways to cut tax, however, these 5 tips for cutting taxes are the easiest. So don’t worry for a huge list of taxable items, be smart. Don’t forget to cut extra bucks before the income tax season and save yourself from heavy taxes.