As the cost of living continues to rise, people are increasingly looking for ways to reduce their taxable income. According to a recent survey, nearly 60% of Americans say they would be willing to invest in tax-saving strategies if they knew how. This suggests a significant amount of interest in reducing one’s tax burden. While there are many ways to reduce taxable income, some of the most popular methods include investing in retirement accounts, taking advantage of deductions, and deferring income. Below are 3 DOs and 3 DON’Ts for lowering your income tax:
DO take advantage of all available tax deductions. One of the best ways to ease the stress of tax season is by taking advantage of all available tax deductions. There are deductions for various expenses, including medical bills, charitable donations, and home office costs. By carefully itemizing your deductions, you can maximize your tax savings and get one step closer to a stress-free tax season. So don’t wait until it’s too late to gather your receipts – start planning now, and you’ll be happy you did come tax time.
DO invest in tax-advantaged accounts. A very effective way to boost your bottom line is to invest in tax-advantaged accounts. Tax-advantaged accounts are investment accounts that offer unique tax benefits. For example, 401(k)s and IRAs are tax-advantaged accounts. Investing in these accounts can reduce your taxable income; you’ll keep more of your hard-earned money. There are many types of tax-advantaged accounts, so be sure to research and find the best options.
DO consider investing in annuities. Investing in annuities can be a great way to reduce your taxable income. Annuities offer a guaranteed income stream for life and are taxed differently than other investment products, providing potentially significant tax advantages. If you’re looking for ways to reduce your taxable income, annuities should be a part of your plan.
There are a few things you really should not do if you want to minimize your tax bill. Here are three things to consider:
DON’T overlook deductions and credits. There are a lot of potential deductions and credits that can help reduce your taxable income, so make sure you’re taking advantage of all the ones that apply to you.
DON’T under-report your income. If you’re caught, you could face hefty penalties. Hiding some of your income from the IRS is not worth the risk.
DON’T forget about state and local taxes. State and local taxes can also add up, so be sure to factor them into your overall tax strategy.
By following these suggestions, you’ll be in a much better position to reduce your taxable income and keep more money in your pocket come tax time. And as always, consult a qualified professional when planning your finances and taxes.