We all have to admit this to ourselves—taxes are scary. You might be the smartest person in your office, but throw the word ‘tax season’ at you and you might just turn into a bumbling idiot because you have very little idea of you to go about it. But then at the end of the day, before April 15th strikes, you just go ahead and do it. A rush job, and a shoddy one at that. And then your world comes crashing down. I have got scarier words for you than ‘tax season’: Income tax liabilities. You never thought this day would come. And yet, here you are.
Do you know what freedom means? It’s the lessening of burden. And you trust me when I say that you’ll feel the full force of freedom when you get free of those dreadful tax liabilities. I was burdened by them too. But then I took some professional advice in income tax planning and did a thorough research online to come up with some tips and tricks that can reduce your income tax liabilities and I’m going to list them out for you. Here they are:
1. Reduce your income
I am not talking about getting a job that will pay you less! I’m talking about reducing your taxable income by using investing in some schemes such as a 401(k), 403(b), governmental 457, traditional IRA, Simplified Employee Pension (SEP) plan, or any other type of qualified retirement savings plan or employer-sponsored program. It’s a good idea to contribute to a Health Savings Account (HSA), or better yet, enroll yourself into ObamaCare. It gives tax benefits to people in a certain income bracket. Another really good idea is to invest in municipal bonds or municipal bond funds whose earnings are not subject to federal tax (Remember to have your research in place before investing in anything. For all you know, it could be taxable). If you’re big on charity, I have some great news for you. Charitable donations are also exempt from taxes. So what I’m telling you is that if you become more charitable this year, you will save on a lot of taxes.
2. You’re losing out on investments? Sell them!
Tax season is really not the time to be sentimental, and especially about your investments. If some of the bonds that you invest them have lost out on their value over the financial year, the best idea is for you to sell them. You will be able to offset stock gains with bond losses. That means that you will be able to lower the net investment income tax. But don’t get carried away! If you’re in a hurry to sell all those bonds that have depreciated a little in value, you might save on taxes now but you might lose out gains later when the stocks are doing well in the market. You need to be smart about it. The best way to go about this is to take some professional advice from people who have a keen eye on the market. You’ve got professionals like the Horne CPA Group and online consultants like 1800accountant.com to give you sound financial advice.
3. Give away those gifts!
If you want to help your children or any other family members, you could use your annual gift tax exemption. You are allowed to give away $14,000 annually as gifts. For more information on this, you could review IRS Publication 950, Introduction to Estate and Gift Taxes. You could use this gift tax exemption to contribute towards your child’s education through the 529 plan account. Remember to keep track of all those gifts you give away because anything above the stipulated amount is taxable! Here is something to chew on if you want to know more about this idea.
4. Small businesses and liabilities
Small businesses can be hit the hardest with liabilities because there are so many minute details that you might forget to include during the year-end tax planning rush job. You need to understand that as a small business owner, you need to be smart about your taxes and all your moves to save on income tax liabilities need to be done before December 31st so that you can get the best out of the schemes you avail. It’s best to hire a professional in this case because of the sheer amount of money you’ll save on taxes.
True freedom is when you have to pay the government less money. No jokes. Follow these steps and you’ll be sure to reduce your income tax liabilities by a huge margin!