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09 Legal Ways to Pay Less Tax | Tips to Reduce Taxes, Save Money

Legal Ways to Pay Less Tax

If you want to know how to reduce tax legally or how to save money, then check out 09 Legal Ways to Pay Less Tax provided on the below segment of this page. There are many legal tips to reduce tax.

Fortunately, there are several things you can do to cut your taxes or increase the amount of your tax refund without incurring the wrath of the IRS. Tax credits and allowable deductions come and go as the IRS alters its rules and regulations from year to year.

Tax Planning

The Indian Income Tax Act allows certain deductions which can be claimed to save tax at the time of filing of Income Tax Return. These deductions which help in saving tax are only available if the taxpayer has done proper tax planning during the year.

The team of recruitmentresult.com is providing you 09 Legal Ways to Pay Less Tax on this page. There are a number of ways to trim your taxes that are likely to remain applicable for a while.

Legal Ways to Pay Less Tax

1) Contribute to a 401k or IRA

Your tax due is based on your adjusted gross income, or AGI. The higher you’re AGI, the more you owe the government. One method to reduce tax is to deposit pre-tax contributions into a 401k or other tax-deductible retirement account, such as an IRA.

The more you contribute to your 401k, the more you can reduce your AGI and the amount you owe in taxes.

Check Updates Of: Indian Union Budget

2) Don’t Pay Off Your Student Loans

It’s often advisable to pay off debts as soon as possible so that you don’t have to pay as much interest. However, in the case of student loans, the interest you pay actually helps at tax time because you can deduct it from your AGI.

Eliminate your credit card debt by all means, but pay off your student loans last so that you can wring out every possible penny in deductions.

3) Buy a House

If you’re considering buying a house, realize that having a mortgage can save you a ton of money on your taxes, since mortgage interest is tax-deductible. For the first few years after purchase, most of your house payment is interest on the mortgage – which means you can deduct a huge sum.

4) Select the Correct Filing Status

Your filing status has a major impact on your tax situation, as this determines both your tax rate and your standard deduction rate. Whatever your personal situation, you are likely to have a choice of two or more filing statuses.

If you are married, you can choose between married filing jointly and married filing separately. Single parents can file as single but can often get a better deal on their taxes by filing as head of household.

Check Now: Highlights of Union Budget

5) Take College Classes

If you have an unexplored interest in Mycenaean pottery or ancient Chinese marketing strategies, pull out your local college’s catalog and sign up for a class. Taking a college course makes you eligible for the Lifetime Learning Credit, and the class doesn’t have to be job-related.

The credit is preferable to a straight deduction since it reduces the tax you owe dollar for dollar, whereas a deduction merely reduces the dollar figure on which your tax is calculated. If your income is above the phase-out range for this credit, another option is to deduct your tuition and fees.

6) Save Receipts

Charitable donations are a valid itemized deduction if made to an IRS-recognized charity, so always get a receipt when you give so you can be rewarded for your generosity at tax time. Other itemizable deductions include healthcare expenses, work-related expenses, and taxes paid to other entities (usually state and local governments). You can even deduct some of the costs you incur while job hunting, such as cab fares and employment agency fees.

Check Also: Indian Rail Budget Updates

7) Double-Check Old Returns

If you missed some juicy deduction or credit on a return within the past three years, you have the option to file an amended return form. You need to fill out a brand new 1040 and also complete the 1040X form, which details the change.

8) Have Your Taxes Prepared by a Professional

Not only is an expert more likely to get you the best possible deal, but you can even deduct your tax preparation fees. Many tax pros offer guarantees so that if it turns out you paid more than you should have, you get a reimbursement from the preparer.

9) Keep Good Tax Records

You need to have receipts for all tax deduction claims so you can show them to the ATO, if they request them. Keep track of those receipts, it’s the best way for you to remember everything that you can claim, later on.

Check Now: Highlights of Union Budget

Final Thoughts

Be aware that not every tip to reduce tax listed above works for everyone, and that it’s smart to consult by typing your comment in below provided comment box. Our experts will soon solve your queries.

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