Paying taxes is a legal formality, and you cannot hide your income from taxmen. But you can certainly lower your tax bill if you plan and execute it properly.
Get Deductions for Going Green
Homeowners who invest in alternative sources of energy are entitled to a tax credit for 30% of the amount they have spent. This means you can lower your tax bill by a large amount if you have bought solar energy system or heat pumps based upon geothermal energy. Thus if you have spent $1000 on alternative energy systems, you can claim a deduction of $300 on your tax bill.
Increase Savings for Your Retirement
Contributions to 401(k) can not only help you in lowering tax bill but also give a big boost to your retirement savings. The contributions to your saving plan up to $17500 (up to $23500 if you are 50 or higher) are tax-free and this contribution is not included in your taxable income.
Donate to Charities
You can help the needy through the charitable organization and also earn deductions for the amount you pay. You can donate not just cash but also clothes, toys, even books, and furniture. Just keep a list of things you donate and remember to ask for a receipt if the donation is above $250. There is a limit to how much you can donate as you cannot give away more than 20% of your gross income.
Deductions for Using Home as Office
You can lower your tax liabilities by a decent amount if you are using your home for doing some business. This deduction is based upon the area of the home used for office purposes So if you are making use of 250 square feet area inside your home for the purpose of some business, you can get a tax deduction of 250X5=$1250 on your taxable income.
Earn Income That is Tax-Free
The best way to pay fewer taxes is to earn income that is tax-free. There are many kinds of incomes that are exempt from any taxes. The income earned through the sale of your house is exempt from tax and so is your saving for the future education of your kids. Many employee benefits such as those received under health insurance are also not subjected to income tax.
Add Up Tax Deductions
There are many different types of tax deductions that are available to taxpayers. Adding up deductions for which you are eligible helps in lowering your overall tax liability. If you are doing business, all business expenses are tax deductible. These include stationary and travel, inventory, and so on. The interest paid on the mortgage loan you have availed form a bank is also entitled to the standard deduction. Donations to charitable organizations are also exempt from income tax. You can add all tax deductions to lower your tax liabilities.
There are much more ways to save your hard money by going in the form of tax liabilities. You can consult your tax preparer or lawyer to know more about ways to lower your tax bills.