Your taxes take away a big share of your income, and if you wish to lower it, you must know how to minimize taxes. However, you must know how to get rid of your taxes legally. Not paying taxes or resorting to wrongful measures of lowering taxes will land you in legal trouble and you might end up paying double the amount you were trying to save.
You can minimize your taxes, and to an extent that it becomes totally nil.
Follow the tips given below and learn how to minimize taxes:
- Your registered income decides your amount of tax. The higher the income shown on papers, the higher is your tax.
- You cannot stop fearing taxes, so you need to show your expenses in a way that your taxes are reduced.
- Getting bills for every purchase will serve as a proof for your expenses.
- Invest in tax-deductible plans. Investing in a retirement account, which gives tax benefits, will help you in lowering your taxes.
- Opt for a 401k plan if your employer offers you one. This will again help you to lower your taxes. You can talk to your employer about this.
- People who are self employed can opt for a special pension program named SEP or Keogh Retirement Plan.
- You can deduct your expenses from your income and lower your taxes. If any kind of mandatory expenses such as medical expense is needed, get it done and include the bills in your expenses.
- According to the IRS, medical expenses exceeding 7.5% of your total gross earnings will be deducted from your taxable income.
- Segregate or itemize your expenses. Segregating your expenses will help you lower your taxes.
- Here is a list of some expenses that you can deduct from your taxable income to lower your taxes-
- Traveling and accommodation expenses related to job or business
- Traveling for interviews and in-transit expense
- Any expenses related to your workplace that your employer does not reimburse for you.
- Interest paid on student loan
- Amounts spent on tax audits or preparations.
- Besides this, you can opt for tax credits. These tax credits may make you eligible to lower your taxes. Some elements under tax credit are –
- Buying hybrid cars
- Child daycare expenses, etc.
You can opt for these tips to lower your taxes. You can also make any corrections or amendments in your previous taxes, if you have failed to include something that would help you to lower your taxes. You can make amendments in your tax returns for a period of up to 3 years.