4 Legal Ways to Reduce Your Tax Liability and Increase Savings
As a small business owner, one of the last things you want to do is fork over a large chunk of your hard-earned money to the government through taxes. However, by understanding which tax credits and deductions you’re eligible for, you can minimize your tax liability and potentially even receive a refund during tax season. Contrary to your opinion, you don’t have to take illegal actions to reduce your tax. All you need is an expert tax strategist who can reduce your tax with proactive strategies.
Before you contact your tax advisor online, check out these four legal ways to reduce your tax liabilities.
- Contribute To A Health Savings Account
Has your tax strategist advised you to contribute to a Health Savings Account (HSA)? It’s For the best reasons. A Health Savings Account is a medical savings account that helps taxpayers with a high-deductible health plan(HDHP) to save for future health care expenses. HSA is one of the best tax deductions to consider if you’re trying to reduce your tax bill. It essentially pushes you into a lower tax bracket and gives you the incredible benefit of writing off the money you contribute each year. If you have a tax deadline, your HSA can be the last-minute option you need to save more money from tax.
You should also know that if you decide to use your HSA fund for something other than health, you would have to pay your regular income tax on the money, in addition to a 20% tax penalty.
- Donate To Charity
Writing checks to your favorite charities is a great place to start if you’re looking for ways to reduce your taxable income. Pre-retirees and those who have had a high-income year are especially likely to be able to take advantage of these opportunities. However, consulting with a tax strategist is essential to ensure you take advantage of all the available deduction options.
Donating your money to public charity can deduct up to 60% of your adjusted gross income. Essentially, what this means is that you’ll be able to deduct your donation from the amount of income you have to pay taxes on.
Ask your tax advisor online, and you’ll know that donating to charity is not limited to writing checks. You can also consider donating long-term appreciated securities, private company stock, real estate, and other potential investments. Instead of selling off your assets before donating, consider donating your assets directly to charity to reduce your capital gain tax liability.
- Claim Tax Credits
Tax credits are one of the most favorable ways your tax strategist can reduce your tax liabilities. This is because tax credits directly reduce the amount of tax you owe. Tax credits top up the incomes of those looking after children, disabled workers, and other low-income earners.
Tax credits work by giving you a dollar-for-dollar reduction in your tax bill. So, if you have a $1,000 tax credit, it will lower your tax bill by $1,000. There are two types of tax credits, refundable and nonrefundable. Nonrefundable tax credits can only reduce your tax liability to zero. Refundable tax credits can also reduce your liability to zero, but they have an additional benefit. If there’s any amount left from your refundable tax credit after reducing your tax to zero, you get the balance of the credit back as a refund.
If your tax strategist already put you on tax credits, you’ll be moved to Universal Credits by 2024, and you won’t be able to claim tax credits if you already receive universal credits.
- Consider Tax–Loss Harvesting.
If you have a low-performing stock in your portfolio, you might also want to consider selling your losing stock to reduce your taxes instead of holding on until it rises. Did your tax strategist tell you about tax loss harvesting? It’s a popular investment strategy that helps you take advantage of a market downturn. Tax-loss harvesting means using your investment losses to offset the taxes you should pay on other investment gains, lowering your taxable income.
Having a tax advisor online doesn’t mean you shouldn’t do your homework. On the contrary, these innovative tax-saving strategies are a perfect fit if you’ve been searching for ways to reduce your tax liabilities. Considering your tax deduction option is great, but you’ll need a proactive tax strategist like Tax Goddess to help you find the best tax reduction strategy that works for you.
If you are looking for the best ways to reduce your tax liability without being penalized by the IRS, you should talk to the Tax Goddess team.