Today, taxes are something that everyone pays. Without paying your taxes, there will be no government, no army, no social security, no medical care, and other government programs. Every individual pays taxes based on their income. They are standard and fundamental costs that you incur to maintain your business.
Tax reduction strategies are ways to reduce your tax liability, reducing your total taxable income. If tax reduction is actually a deduction of your income, the tax credit is a deduction of your taxes. With that in mind, here are a few strategies you can consider.
You must have probably heard of an employer 401k account to contribute to the employee’s 401k account. Before you pay your taxes, your contribution goes into that account. A similar substitute for this 401k account is an Individual retirement account. So it is a 2-in-1 situation where you save for your retirement whilst reducing your taxable income.
There is a limited amount of cash to contribute to this account, which slightly changes every year. A reduction in your taxable income will significantly reduce the taxed amounts you owe. However, you will have to pay the tax amounts once you withdraw the amount after retirement.
Health Savings Account or HSA
An HSA is a tax-advanced medical savings account. The funds you will contribute to this particular account are not subject to income taxes and reduce your taxable income. They make healthcare costs much more pocket-friendly and affordable. So you can use the money from an HSA only for medical expenses.
But given how expensive healthcare is today, this should not be much of a problem for you. You can use this cash for prescriptions, OTC medicines, vaccines, and other medical needs. And here, you owe no taxes when you take your cash out.
Cost segregation in real estate can greatly reduce taxes and help increase the cash influx of your property greatly during the initial years. You can take advantage of the whole tax system. The “secret” real estate agents use is cost segregation. It is a tax reduction strategy that can cover taxable income by decreasing various aspects of a property.
Home Office Reductions
This tip is for the entrepreneurs out there. If you own your own business or side hustle and work from home, you can take this opportunity. You get to deduct the normal personal expenditure as business ones and therefore lowering your taxable income. To avail of this, you need to have a specific area in your home that you solely use for your business. If you do have such a space in your home, you could deduct your rent and utilities. If you are a homeowner, you can reduce the amount of your mortgage interest.
Separate Business Account
You should always make a separate business account for your business expenses. This way, you can pull your business deposit statements that clearly show your business income and all of your business expenses when the IRS audits you.
Business Start-up Tax Reductions
Start-up costs include any amounts paid in connection with creating your business. Organizational costs include the legal fees associated with creating a corporation or partnership. This can help you greatly reduce your taxable income.
Cell Phone Expenses
If you use your personal cell phone for business purposes, then you can use this as a tax write-off. You can write off both the cost of your cell phone and cell phone service and the tax year that you incurred those expenses.
Tax deductions can greatly benefit you by reducing your taxable income. This will shift you to the lower tax bracket category and help you save thousands of dollars at the end of each year. Be it retirement accounts or medical accounts, you can put all of them to your better use and reduce your taxes.
In the end, you must have heard that rich people do not pay any taxes. But the simple reality is that they calculate their taxes very efficiently, and you can do the same. It is no secret that how can you save money. All you have to do now is educate yourself on all the legalities regarding tax and choose your options carefully.