No one likes paying taxes. Though there’s no way to get out of paying your due, there are ways to minimize the amount of taxes you pay or to get a larger return during tax season. In this article, we will be exploring several legal and legitimate ways that you can reduce your taxes.
Feed the IRA
When it comes to lowering taxes, many financial advisors will recommend that you contribute to a retirement plan. The reasoning behind this is that the money you contribute to a traditional IRA is considered a pre-tax condition, which lowers your taxable income. Essentially, this means that you will pay less in income taxes, regardless of whether you take the standard deduction or itemize.
Have a Non-Traditional IRA
A Roth IRA is an individual retirement account that allows withdrawals on a tax-free basis if specific conditions are met. The biggest difference between Roth IRAs and traditional IRAs is the way they’re taxed. Roth IRA’s are funded thanks to after-tax dollars, so all contributions are not tax-deductible; however, the money is not getting taxed when you withdraw funds.
Roth IRAs are a great option for people that expect their marginal taxes to be higher in retirement than they are now. However, you can’t contribute to a Roth IRA if you make too much money. The limit for single filers is currently $129,000, and for married couples filing jointly, it is $204,000.
Most banks, investment companies, and brokerage firms offer a Roth IRA, so if you want to look into starting one, you have plenty of opportunities to do so.
Harvest Investment Losses
Reporting losses on capital investments is another great way to reduce your taxes. In fact, “loss harvesting” is considered to be a key year-end strategy used by many financial advisors. It’s the time when you sell your investments at a loss so that these losses can later be used to minimize capital gains taxes, thus lowering your overall tax liability.
Maximize Your Business Expenses
If you’re a business owner, there are many opportunities for you to find tax breaks due to tax-deductible business expenses such as:
- Office rent
- Home office expenses
- Costs for buying and maintaining a business vehicle
- Inventory
If you have a lower net profit, your self-employment tax will also be lower, so writing off as many expenses as possible can help you further reduce your tax bill. Furthermore, business tax deductions can also lower both your self-employment and income taxes.
Contribute to Charity
Making donations to charity is another way to lower the amount you pay in taxes. You can donate cash, toys, household items, or your volunteer efforts, which can then lead to substantial tax savings.
With that said, time spent doing volunteer work isn’t tax-deductible. However, the expenses that are incurred during that time are. Along with that, donations are tax-deductible only if you’re donating to a qualified nonprofit.
In Conclusion
There are plenty of legitimate and transparent ways to reduce the amount you pay in taxes. Some methods, like donation, also provide a way to give back and help others while simultaneously saving money. If you want to learn more about the different ways you can lower your taxes, speak to a financial advisor.
Please feel free to reach out to me on this or any of your investment needs or questions. I may not always have the answers at my fingertips, but I promise I will get them for you. Michael Torrence
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Michael Torrence – Investment Advisor Representative: Michael was born and raised in Ohio and attended The Ohio State University. After College, he was commissioned as a 2ndLt in the United States Marine Corps. He attended his initial training in Quantico, Virginia, then graduated at the top of his Primary Aviator Class and was selected for the Strike (Jet) Platform.
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