Depending on your financial situation, you either look forward to or dread each tax season. This year, let's try something new. Whether you're looking to improve your tax refund, owe less to Uncle Same, or break-even for once, we can help.
The key is learning ways to reduce taxable income. Keep reading for our top suggestions on taxes.
Ways to Reduce Taxable Income
Learning ways to reduce taxable income doesn't mean earning less money or even putting yourself in a lower income bracket. After all, you've likely worked very hard to get where you're at. Why should you have to pull back now just to save money during tax season?
Here are some alternatives to help reduce taxable income.
1. Shift Some of Your Income
Income shifting or splitting is a term that refers to shifting some of your earnings to people in lower-income brackets, making it less taxable. In most scenarios, this refers to shifting your income to your children.
You can also use income shifting to help offset taxes on your business. However, this is only possible if you have multiple branches in different geographical locations.
2. Find Tax Deductions
One of the most common ways to reduce taxable income is by finding legitimate tax deductions. Tax deductions come in many forms and can vary based on if you're filling personal or business taxes.
For example, if you're a business owner, most of your business expenses can be written off as deductions. This includes day to day operating expenses, uniforms, travel, day to day fuel costs, food, and more.
Personally or professionally, you can save some money on taxes by donating to charity throughout the year. This can be small monthly contributions, donating equipment or items to charity, etc. Just make sure you document your charitable contributions and receive a receipt.
3. Find Ways to Make Tax-Free Income
While it sounds made up, tax-free income is a legitimate thing. It can come in the form of municipal bonds and other investments, such as Roth IRAs.
You can also gain tax-free income from selling a home. However, this only applies if you aren't flipping the house for profit or previously used it as a rental. Depending on the state, to qualify as tax-free income, the home must have served as your primary residence for a certain number of years.
This includes alternative currencies as well, such as Bitcoin. However, you'll want to look at simple cryptocurrency tax software to make sure you're doing everything legitimately to avoid an audit.
4. Jump on Tax Credit Opportunities
Lastly, take advantage of tax credits for ways to reduce taxable income. Tax credits come in all forms and can be used for business or personal reasons.
For example, hybrid cars and other green/sustainable energy initiatives can help you save on your taxes. This includes solar panels, energy-efficient electronics, and other eco-friendly options.
You can also use childcare costs and education expenses as tax credits to help offset what you owe Uncle Sam.
Looking for More Ways to Save Money?
Whether you read this article in time to find ways to reduce taxable income this year or not, there's still knowledge to be had. It's a complex topic with a lot more information to learn.
Check out some of the other financial articles on our blog to find more ways to save money and be a frugal business owner. We have information on accounting, budgeting, financing, and money management. Visit our Finance section right now!
