If you have an income, you’ll need to pay taxes. Ever since the beginning of the 20th century, taxes on personal income have been a part of the code. And they are still with us today, without any signs of them going anywhere, anytime soon.
Every year, regular people have to hire defense attorneys to defend them against the IRS. And that’s a major source of worry for many. They don’t want to pay taxes in the first place. But on top of that, they hate living in fear that auditors could come at any time and rifle through their accounts.
The good news is that there are many ways that you can legally slash your tax bill and make the payments to the IRS more bearable. Here’s what to do.
Put Money In Your 401(k)
Putting money into your 401(k) allows you to defer tax payments to the future. It works like this. You put in money now from your gross pay. And then, when the time comes, the income you draw from your account is subject to tax. This way, you can allow your money to grow before paying tax, and then only pay tax afterward, once you start taking it as income in the future.
Start Giving More
Here’s another idea for people who want to slash their tax bills: give more of your pre-tax income to registered charities.
The government doesn’t tax donations to charities. That’s because many charities support causes that the government itself funds, like healthcare and housing. So if you provide to charities, you’re giving back to the community and not actually taking any income yourself.
Know Your Timings
The tax authorities tax you on a per-calendar basis (if you are self-employed). And that means that when you receive income has a big impact on how much you pay.
Let’s say, for instance, that you earn a large amount of money in December but then very little in January. And let’s suppose that this large payment in December pushes you into a new tax category for the year. Well, you have options here. Either you can just pay whatever taxes you need to on the money you earn. Or you can defer receiving the income until January, reducing this year’s taxable income and adding to next year’s instead. Deferring (or putting off) income to the future can be a great way to reduce your overall tax bill when it starts to rise.
Put Money Aside For College
Did you know that there are plans that allow you to set aside money for children’s education and reduce your tax bills at the same time. Some states allow you to deduct college savings on your return (although you’ll still have to pay all the regular federal income taxes). For instance, your state might have a 529 plan that lets you contribute educational gifts to a beneficiary up to a certain limit.
So there you have it: some legal ways to slash your tax bill. Try them for yourself and watch the savings rack up.