Taxes and death are inescapable. You cannot avoid tax, but you can minimise the effect they have on your finances. Unlike convoluted tax shelters and offshore bank accounts, there are legal ways to reduce your taxes without risking penalties. Here are seven easy to use strategies that are most likely to help you lower your tax.
Tax-free income maximisation
Some types of income are not taxable, unless under certain conditions. Such income includes life insurance, scholarship money, welfare benefits, child support payments, inheritances, gifts and bequests and sickness or physical injury damage award. Others include money refunds from a manufacturer or dealer for an item you buy and returns for qualified adoption expenditures. This is a sure way to lower your taxes.
Taking advantage of tax credits
Taking advantage of the tax credit does something that deduction does not do; that is, reducing taxes dollar for dollar. The list of possible tax credit changes every year. You may qualify for the tax credit by doing a simple thing such as adding insulation to your home. Take advantage of this strategy
Delaying the pain
You may decide to pay your taxable income later by deferring the date when you are supposed to pay. This strategy is like securing a free loan from the government. You may do this by stalling employer bonus to capitalising in IRAs and other retirement plans.
Shift income to others
You can let others such as your children carry your tax burden if you are in the high tax bracket. This is done by shifting your income to others with lower tax bracket. However, the law has changed, making this strategy harder that before. Nevertheless, it is still a viable way to lower your taxes.
Taking tax deductions
Taking tax deductions is one of the best ways to lower your tax. If you more deductions, you will in turn pay less tax. To nail this, you should know all the possible deductions that may work in your favour and take advantage of them throughout the year.
Lowering tax rates on individual income
This is an interesting one. State tax rates are bound to change dramatically. The changes can be as low as 5% to as high as 35 percent. You should take advantage of available most moderate tax if you earn income such as mutual fund, stocks and real estate.
Choosing the best feeling status and number of exemptions
Finally, consider your tax filing status since it has a profound effect on the taxes that you pay. As one of the individual taxpayer, you are eligible for tax exemptions. You may be entitled to many exemptions if you have children depending on you or other dependents such as spouses who are disabled.
With these seven techniques, you will be able to lower your tax significantly.