Are you on the lookout for ways on how to pay fewer taxes? If you are, then you are in the right place.
Over years, many people have passed mixed reviews with issues that have to do with taxes. Some are of the school of thought that taxes are legal fraud by the government while others have expressed their displeasure with the percentage of taxes.
I’m yet to come across one who has not expressed displeasure to issues of taxation at some point in their life. People are constantly on the lookout for ways to pay less of their income to the government for some reason.
While others are of the opinion that taxes are not well spent by the government. Whatever be the reason, I’m aware that people are constantly searching for ways on how to pay fewer taxes in the United States and other countries.
I have canvassed opinions of many people who have successfully paid fewer taxes over the years without getting on the black book of the IRS and I shall reveal the schemes to you – the best 10 ways on how to pay fewer taxes.
Also, I’m a firm believer of the pensioners not paying taxes. I believe people who have worked their ass and paid taxes in their working years should be allowed to enjoy their pension in peace. If the government would cut expenditure in the procurement of warfare and other luxuries, I believe it won’t need the taxes from pensioners.
In this light, this article also contains the best ways on how to avoid paying tax on your pension. You would be thankful you came across this post. Now let’s get to the countdown already.
#1. Contribute to a 401(k), 403(b), or 457 Plan
I think the best way to cut taxes is by signing up with programs like 401(k), 403(b), or 457 Plan. I’m sure you know what these plans stand for. These are retirement programs that help you pay into your pension account. The Idea of taxation is that you get to pay more taxes when you earn more.
With programs like the ones indicated above, when you contribute more to the programs, you get to pay less tax. In 2020, the maximum 401(k) contribution one can make has been set at $19,500. People who are aged 50 or above are allowed to make an additional “catch-up” contribution of $6,500, bringing your total 401(k) contribution limit to $26,000. The limits for 403(b) and 457 plans are the same.
There are two major benefits of taking part in the 401(k) program and they include – first, you lower your taxable income for the year you make the contribution.
Secondly, you won’t pay any income tax on the investment returns in your retirement plan until you withdraw them in retirement; starting in the year you turn 70½, you must begin taking required minimum distributions.
The 401(k) retirement scheme and other plans are one of the best ways of paying less taxes without being hunted by the law.
#2. Pay Student Loan
According to a study conducted by Harvard Business school in 2017, more than 60% of college students graduating from both public and private schools take student loans to complete their studies. It’s not advisable to take a student loan when you have the fund to pay your tuition fee, but in conditions when taking student loans become inevitable, you’ve got to go for it.
Student loan has negative effects but is rest assured it has a silver lining too as I shall share with you shortly. When paying a student loans, you can make a yearly deduction of $2500 on your student loan in what is called ‘above the line deduction. This deduction is usually allowed for people who earn less than $70,000.
For someone in the 22% tax bracket, claiming the full $2,500 deduction could reduce their tax bill by as much as $550.
#3. Purchase a Property
Do you have enough money to buy a house? Are you planning to purchase a house? If you have the capital to do so, I would advise you go ahead instead of allowing your money lie fallow in your account. Buying a house would definitely help you pay less tax since the interest on mortgage can be deducted.
From 2017 to 2025 tax years, people are allowed to deduct interest on up to $750,000 of mortgage debt ($375,000 for married couples filing separately).
Also, you can deduct up to $10,000 of state and local taxes, including property taxes and state income or sales taxes. The limit could go down for as low as $5,000 for married couples who the tax returns separately.
However, you should know that these limits can’t be effective unless you itemize your deductions on Schedule A. Also note that, you can claim the standard deduction or itemized deductions, whichever gives you the greater tax benefit.
Buying a house on mortgage can be helpful in paying less of tax. You may need to speak to a financial expert about this point or do some digging and read more on how to how to pay less taxes by buying a property.
#4. Fill your Status Correctly
What many fail to understand about issues concerning tax is that filling status has significant impact on taxes. Your tax rate and the amount of standard deductions allotted to you depend on your status.
For instance, in 2019 tax year, the standard deduction was set at $12,200 people who filled in as singles but $18,350 for a people who claiming to be the head of household. Generally, the tax bracket is more friendly to people who fill as heads of household than taxpayers who ill as singles.
Usually, taxpayers are often given two status options but this depends on current situations. The 5 status options are given below;
- Single – This status is self-explanatory I guess. This status is for individuals who are yet to be married or those who were once married but legally divorced.
- Married Filing Jointly – Married taxpayers can file a joint return with their spouse. If your spouse died during the tax year, you might be able to file a joint return for that year.
- Married Filing Separately – there are some instances where married couples decide to fill their tax returns separately, although this does not necessarily lower tax bills.
- Head of Household – it is fair to say the US tax system is considerate when you look at this option. The Head of household status applies to a taxable adult who is not married and takes care of a dependent person like a child or parents.
- Qualifying Widow(er) With Dependent Child. This status is available to taxpayers whose spouse died during the tax year or in the two preceding tax years who have a dependent child.
#5. Consider going back to school
Are you an academic enthusiast? Do you love studying? Do you know that going back to school is one of the legitimate ways on how to pay less taxes? Sounds surprising right? Yeah I know. But this is one of the best ways to cut your taxes. You should consider getting a course catalog and registering for classes to help you cut your bills.
There are several academic expenses that qualifies you for tax breaks. Also, the American Opportunity Tax Credit (AOTC) applies to students with other expenses to cover. Although the AOTC is only considered for the first four years of undergraduate studies but you could save up to $2500.
But the Lifetime Learning Credit is even broader. It offers taxpayers a broader benefit and the good this is that there isn’t a limit the number of years on claim it, one does not need to be attending classes or be enrolled to a degree program to enjoy this benefit.
Truly, becoming a student is a wise option for young taxpayers looking for legitimate means to reduce their taxes.
#6. Keep Donation Receipts
Do you need to donate to charitable organizations every now and then? If yes, have you been collecting receipts for this act of generosity? Well, you may need to start collecting receipts when you donate to charities, especially those that are recognized by IRS. The government has a way of rewarding people who donate to charities when it comes to filling tax.
I encourage you to cultivate the habit of saving receipts of your charitable donations. When your entire charitable contributions are more than the available standard deduction, you may get a lower tax bill as a reward for your generosity.
#7. Check Old Returns
Most times we just fill our tax returns without going through details of the previous years. As you prepare your tax return for the year, ensure you go through those of previous years. When you do this, you are likely to realize some deductions or credits in those of previous years.
People usually have the options to claim a tax break when they fill the tax return in less than three years from their last filling. All you got to do is to obtain and fill the 1040X form to amend your return and get a refund. Ensure your details are correct before submitting to the IRS and you are on your way to getting a refund.
#8. Hire a professional
If you do a single job and not involved in multiple streams of income, your tax situation is likely to be simple and straightforward so that you don’t need an expert to help fill your form. But for those who do all sorts of jobs and have complex tax situations, hiring an expert is your best bet.
An expert is certain to guide you through so that you won’t lose unnecessarily over poor fillings. Tax preparers are updated with changes in tax and are able to guide you through the most difficult situations. They do this for a fee but I think it is better to pay the fees than to get into the black books of IRS for wrong filling.
#9. Deduct medical or dental expenses
I hope you know the cost of getting treated for an illness and other dental conditions can be deducted from your tax? Also, the cost of tolls and parking as well as other dependent expenses are deductible. You may need to consider all this when filling your tax returns.
When you cover the medical cost of dependent people such as children, or a handicapped person on elderly parents, these can be deducted from tax. When next you are filling your tax returns, be sure to include the cost of taking care of the dependents under your care and you are certain to get deductions on tax.
#10. Search for Tax Credit
There are several tax credit such as taking care of children, caring for an adopted child, and credit for low income earners. These are credits that could help you pay less tax. Do you figure that you might score of any of the tax credited listed above?
Having read my 10 best ways on how to pay less taxes, I hope you have learnt valuable lessons to help you when next you are filling your tax returns. Normally, from the passage above you should know the first thing to do when filling your taxes is to first lookout for deductions or credits applicable to your situation.
Whoever fills your form, you or an expert, be certain to double-check the details before submitting to IRS. When you do this, you are certain to have exhausted possible means of reducing your taxes.
I hope my article helps you save money by paying less tax. Do you have any question regarding this post? Or do you have contributions to make? Please let us know through the comment section below. You are certain to get a prompt reply from me.
Visit https://www.irs.gov/ to file your returns