Save on Taxes – How to Pay Less
Tax planning is an important means by which you can save on your taxes. Tax planning basically encompasses making the right use of all the deductions you are entitled to so that the taxable income is reduced. In this article we will highlight the various measures you can take in order to reduce your taxable income. Remember, it is not a wise decision to conceal any tax related information from the Internal Revenue Service but you can pay less by following ethical methods. Given below are the following measures for the same. Check them out.
- If you are able to reduce your taxable income, the amount you shell out as taxes is also reduced. How will you go about it? Save for the period after retirement. You can contribute ‘pre tax funds’ to 401(k) retirement account or in IRA.
- You can also buy so called tax deferred annuity. You begin to receive payments from the annuity but you will have to pay only for the amount you receive as tax.
- Get your itemized deductions calculated. You have 2 options. You can either itemize the deductions or avail standard deduction so that you can provide a filing status of the same.
- You can have a business of your own. In case you are planning to start a proprietorship business, you can give your organization a legal entity. By doing so, you can avail tax deductions and advantages.
- Converting traditional IRA into Roth IRA is another method of reducing your taxable income so that you have to shell out less for taxes. Once you do so, you will be converting the whole amount into Roth IRA but the amount you earn from the same will not attract any tax when you decide to withdraw the same at a later stage. This is ideal for the taxpayers that belong to the higher income strata. They can save on the tax by adopting this means.
- If your taxable income is lower than USD$95,000, you can avail the facility of ‘Making Work Pay Credit’. If you are filing it singly you can avail as much as USD$400 and USD$800 if you are filing with your spouse.
- HSA or Health Savings Account – If you open a Health Savings Account, the proceeds of the same can be used to make payments for your medical expenses. And this amount is deducted from your taxable income. As such you pay less tax.