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As a smart citizen of the country, you must do your part and pay a fair share of your taxes. But, as an intelligent businessperson or financially responsible person, you should know the tips and tricks to help you save money on taxes.
Now the question is- How to reduce taxable income? This blog has discussed this matter vividly. Please read on.
Owning Rental Property
Owning rental property can be an excellent path to reduce one’s taxable income. If fellows own a second home or investment property that they rent out, not only are they reducing their tax liability, but they’re also getting paid for the use of it.
Many folks like to buy a vacation home in another state and rent it out when they aren’t using it themselves. If that sounds like something up your alley, there are other benefits as well:
- You might be able to deduct the mortgage interest on this property, which is usually not available if you live in the house yourself
- There might also be depreciation deductions from owning an income-producing asset such as real estate
- You will also receive certain tax breaks by incorporating yourself as an LLC or similar structure if needed
Buying Insurance Plans
Insurance is a great way to reduce one’s tax burden. For example, one can buy insurance plans such as:
- Health insurance
- Life insurance
- Disability insurance
- Homeowners Insurance
Donate to Registered Charities
If you wish to donate to a charity, be sure it is registered with the IRS. People can find a list of registered charities on the IRS website. They can also donate money or property directly to a local government unit (city, county, or state) for its use for charitable purposes.
401(k) plans are employer-sponsored retirement plans that allow employees to save for retirement. The employees contribute a portion of their salary to the 401(k) plan, and the employer may match their contributions. These accounts are tax-deferred until they’re withdrawn at retirement age.
Simple IRAs are easy to set up, manage and transfer. So a Simple IRA is the best way to save for retirement or other goals with a tax-advantaged account.
Simple IRAs are not just for one employer.
If your employer offers both traditional and Roth IRAs, you can contribute to either or both of them each year.
Contributions to a Health Savings Account (HSA) are tax-deductible, and you can withdraw money from your HSA anytime to cover medical expenses. You could also withdraw money from an HSA to pay for non-medical expenses such as over-the-counter drugs and contact lenses.
You can contribute up to $6,750 for 2018 or $7,000 if you’re 50 or older by the year-end. If you contribute more than that amount in 2018, the excess will be carried forward into 2019 without penalty.
If you are concerned about your taxable income and want to reduce it, you must follow these tips on how to reduce taxable income. It will help you save money on your tax return while also helping your budget in the long run. Please consult with an experienced tax professional to calculate such delicate matters.