The dread of tax time rolling around is something that we will face each year. Like many, you may be looking for ways to reduce your income taxes. Agonizing over properly completing our income taxes and calculating them to ensure that we are paying the right amount can be exhausting. Attempting to stay ahead and stay current with the IRS can keep many citizens awake at night.
For many, it can also be financially exhausting, sometimes forcing us to dig into savings to cover either the state or federal requirement that we owe. Even after many of us have hired CPAs to properly review and complete our tax requirements, there is often a balance to be paid or little to no refund. The good news is that there are some strategies that will ease that burden and help reduce your overall income taxes.
Here are the 5 best strategies to reduce your income taxes
- Branch Out As An Entrepreneur
- Add More To Your Retirement Accounts
- Wealth Investment Comes With Reduced Taxes
- IRS Tax Credits
- Know Your Options Before Your Taxes Are Due
1. Branch Out As An Entrepreneur
Every time someone takes on a new business, there is a risk associated with it, but the tax breaks make it worth taking the plunge. Whether you are starting this business to run after your primary job or if you are taking a leap into the unknown, the tax breaks at both the state and federal levels can be satisfying. Deduct costs and expenses associated with the business to your taxes. Make sure to have receipt documentation of these expenses, whether it is material purchases or a bill for utility services. A tax break is waiting for you on your income taxes.
If you are working your business out of your home, you are able to take advantage of tax breaks related to your home expenses. Your office space and any utilities that are used in that space where you are working can be applied for tax deductions, further reducing your income taxes annually. Even if your business has not been very profitable the year before, the payoff in tax breaks may be enough to keep you pursuing your business in the future.
If you have a business with employees and offer health insurance as a benefit to them and yourself, you could qualify for an additional tax deduction that will lower your income tax at the state and federal levels. Consider the various tax breaks that come with owning a business as you get started and start to implement benefits programs and employment options.
2. Add More To Your Retirement Accounts
Each year your retirement package has funds delivered, but many do not take advantage of capping off these accounts. When you maximize the amount that you can.
apply to your retirement package, you are alleviated by a tax burden on that portion of your income. If you are not retiring in the near future, speak with your employer about adding additional funds to these accounts and maximizing your total annual contribution. The benefits of this option extend beyond your tax reduction.
If you have not enrolled in a traditional retirement account, take advantage of investing into a traditional IRA account. When you maximize your annual contributions to this account, you are able to reduce your income taxes overall. These pre-taxed dollars will reduce your income taxes as long as you are making contributions to the account. When you contribute the maximum $6,000 annually into the account, you are getting the biggest reduction in your income taxes available through this tax break.
3. Wealth Investment Comes With Reduced Taxes
As your income continues to grow each year, it is essential to make the right investments into wealth management with your income. One of the best ways to invest your money while reducing your overall tax burden is to invest in municipal bonds. These bonds essentially providing funding to agencies at the state or federal level, allowing them to meet their budget and provide the services necessary. In order to encourage more participation in this program, the federal tax requirement is waived for these bonds. The investment payments into these bonds are tax-free, making them attractive to a number of investors looking for wealth investment that does not cost them again at tax time.
Mutual funds and stocks are also a great investment for long-term capital gains. Depending on your income level, the rate at which your capital gains will be taxed can vary. Any gains that you have had for under a calendar year will be subjected to the standard tax rates in your state. Planning for long-term gains with these investments is the best way to maximize your tax benefit. With a preferential tax rate on these different investments, you could pay less in income taxes because of these annual investments. The tax rates for these various investments becomes more favorable as the accounts age and the investment continues to grow annually.
4. IRS Tax Credits
For many individuals and married couples filing jointly, there are additional IRS tax credits available based upon your income. For those who qualify, tax breaks such as the Earned Income Credit allows the taxpayer(s) up to $529 per child in credit. Those taxpayers who have students in higher education may be eligible for the American Opportunity Tax Credit that can allow up to $2500 per student enrolled in a
post-secondary program. For taxpayers who may have owed a small balance in income taxes, these tax credits could be enough to help you break even or even receive a small refund. For those with a larger balance, this can really reduce the overall balance significantly.
5. Know Your Options Before Your Taxes Are Due
Before you file your income taxes, know what options you have available to reduce the overall. If you are looking to reduce your income taxes for next year, consider the above strategies into your business tax credits, wealth investment, retirement investment, or take advantage of the IRS tax credits that are available and apply to your family.
At Bogart Wealth, we have a team of advisors ready to assist you with your investments. Reach out to our firm today about scheduling a consultation for your wealth investments and learning how to reduce your income taxes.