Tax bills can always be a total pain when they come with a nasty, expensive surprise. However, what most people don’t know is that there are certain ways for you to cut those taxes and make them more manageable. Here are 8 popular ways to do so:
1. Add the Money in a 401(k) Plan
A 401(k) plan does not take any tax as long as you stick to a certain amount of money (usually under $19,500). If you divert the money straight from your paycheck into your 401(k), then the IRS won’t be able to tax you. The more your income increases, the more you can send – and the more you will save.
Ultimately, a 401(k) is also one of the best ways of saving money while also paying less in taxes. You can even start saving for your children’s tuition with a 401(k) to which you’ll add much more since taxes won’t be so much of an issue.
2. Claim Tax Credit
If you look after disabled workers, children, or individuals on a low income, then you might be able to claim a tax credit. These can be either working tax credit or child tax credit. Naturally, this can also be seen as a great incentive to help those in need.
Amazing programs can be created starting with the simple desire to cut one’s tax bill. Groups of people can gather and help people with special needs every other week or so – and the government pays them back, so to speak.
3. Transfer Assets to Spouse
If your spouse earns a lower income, then you might want to consider transferring your assets in their name. You won’t be charged any capital gains for those assets anymore, and since their income is lower, they won’t charge as much as they would charge you. Companies such as kjtaxlaw.com can help you with information in that regard.
We highly recommend you to get informed before doing such a thing, as it can also fire back if not done properly. For example, assets that generate income will increase the income of your spouse, potentially making no difference in terms of who owns the asset.
Consulting with a tax professional is almost mandatory in such cases. Even if they come with a cost you might not want to pay, they will eventually help you lower your tax bill to a comfortable amount.
4. Claim Landlord’s Expenses
If you have a property that you rent out, you may deduct certain costs that would normally be taken from your income. These fees can include the payments for cleaners and gardeners, landlord insurance, letting-agency costs, and so on.
In fact, if you own anything that produces some sort of income, you should look into how that particular asset is being taxed by the government. If you’re lucky enough, a great majority of your expenses could be deducted from your tax bill.
Moreover, artists – for example – don’t have to pay tax on anything related to their job – things such as art research or travels for this purpose.
5. Contribute to Your Health Savings Account
If your HAS is highly deductible, then you might want to consider adding your money to that plan. These plans designed for medical expenses are exempt from tax and making contributions to them will lighten your tax load. Withdrawals are also tax-free, as long as you use the money for medical expenses.
Overall, it’s much more affordable compared to transferring into multiple bank accounts. As with the 401(k) plan, keep in mind that accounts with a certain purpose are often tax-free. On top of that, they’re much easier to manage when it comes to not spending money from your personal bank account.
6. Time Taxpaying Right\
Sometimes, it’s much better to make a tax-deductible payment on December 31st rather than on the 1st of January. It might seem like one day is not one big deal – but if the payment passes onto the next month (and on the next year), you might have a harder time keeping up with the tax payments.
Usually, people complain about taxes being too high because they manage multiple payments at the same time. Remember the basic rule: debt and tax should be paid before anything else and whenever possible. Even though you might want to buy a new car or such, make sure to take care of your tax bill and debt, if applicable, first.
7. Buy-to-Let Mortgage for Tax Relief
Many people take out a mortgage in order to get a house – but if you take it just to have it act as a rental property, then you may claim a tax credit of 20% on the mortgage interest. This will definitely be noticeable on tax day, as you’ll have less tax coming your way.
On top of that, a rental property can also translate to generous income if you do a bit of research beforehand. Buying in an up-and-coming area and enjoying a 20% tax credit will certainly help fill up your savings accounts.
8. Claim Tax-Deductible Expenses
You may deduct several expenses as a business owner, overall reducing your tax. Things such as phone cost, fuel, or running costs for the office might be deductible from the profits.
As mentioned in the case of artists above, almost anything that you do that is related to your job or business, in terms of spending money, can be deducted from your tax obligations. However, make sure to save all the receipts and other types of proof, as they might be required upon filing your tax forms.
The Bottom Line
You don’t have to fear your tax slip every time you see it. You just need to know how to deduct your taxes so that your tax day doesn’t come with any surprises.
At the same time, it’s also very important to keep track of your taxes on a monthly basis so that the final tax day isn’t as stressful as usual. In short, if you manage everything well enough, you’ll know exactly what your tax bill looks like even before receiving it!