Is it possible to reduce your taxes?

Tax season is back! Even though paying taxes is a part of our lives and probably not our favorite thing to do, like going grocery shopping or getting out of bed to go to work, we still have to do it.

However, it’s true that the majority of us would like that money to stay in our pockets and not go straight to the government, but the law is the law, and we have to do the right thing.

The good thing is that there are quite a few ways to reduce the amount of taxes you have to pay each year — and they’re completely legal. Some of these methods are only suitable for small business owners or people who are self-employed, while others can be used by all of us.

In today’s article, we’re going to share all the tips we know on how you can simply lower the amount of taxes you have to pay this year. Click on the next page to see all the information you need!

1. Open an account for health savings

If you’re lucky enough to have an eligible high-deductible medical plan, the first way you can reduce the amount of taxes you pay is by opening an account for health savings.

We’ve talked to a few certified public accountants to get the information we needed for this article, and they told us that the money you would’ve normally paid to the government will never get taxed if you spend each penny on medical expenses.

Moreover, people who contribute to these sorts of accounts are offered a prompt tax deduction as well as tax-deferred growth. Besides that, they can also withdraw the money without being taxed if they plan on using it for qualified medical expenses.

And at the end of the year, if there’s any balance left, the good thing is that it can roll over endlessly, just like the assets you’d have if you’d opened a retirement account.

2. Don’t forget about your retirement account

Experts say that another easy way to lower the amount of taxes you have to pay each year is by opening your retirement account. The best part is that this method can be used by anyone. If you’re a young adult who thinks that you don’t need something like this, you’re going to retire someday, aren’t you? See, so you need it.

If you think of opening a traditional 401(k) plan or an IRA account, those amounts of money can actually be deducted from your taxable income, which means that you won’t have to pay as many federal taxes as you would’ve without this method. And that is not all: those funds also grow without any taxes until you decide to retire. Isn’t that great?

If the first 2 types of accounts mentioned aren’t for you, you can open a Roth account, which is funded with after-tax dollars. However, you won’t receive any tax deduction, but the money that is in that specific account will grow tax-free, and you’ll also be able to withdraw it in retirement without paying anything extra.

Don’t forget that you should make your contributions to workplace 401(k) accounts by the end of the calendar year (by the end of 2023, for example), while tax-deductible contributions for traditional IRAs can be made until the tax-filing deadline.

3. Do you have a side hustle? Use it for business deductions

If you have a side hustle, you’ll be happy to read what we’re about to tell you! If you’re a self-employed person, whether you’re working part-time or full-time, you can actually qualify for scores of tax deductions.

If you still want to pay fewer taxes but don’t exactly have a side gig, now is the time to get started. Do you know what that means? If you have any freelance projects or if you’re a happy ride-share driver, you could receive tax deductions, which means more money in your pocket!

Some of the side hustle deductions that are now available for you include shipping, vehicle mileage that is related to your business, website fees, advertising, professional publications, memberships, even some of the home internet charges that are used for your side gig, office supplies, travel that’s related to your business, and any other expenses that help you run your side hustle.

But that is not all: if you’re the one who’s paying for your dental, health, or long-term care insurance, those expenses can actually be deductible too, so check it out.

However, you should know that you can save lots of money on taxes if you do your research and do things right, but some of the rules and conditions imposed by the IRS can be a little complex, which is why it’s best to collaborate with an accountant if you don’t know the proper way of dealing with this (it’s different from one person to another).

4. You can deduct 50% of your self-employment taxes

Did you know that you can actually deduct half of your self-employment taxes? That’s crazy! To fund the Medicare and Social Security programs, the American government estimates a slightly higher than 15% Federal Insurance Contributions Act tax on all earnings.

As you already know, employers have to split the cost with the people that work for them, but those who are self-employed have to pay the entire amount by themselves. The good news is that the government wants to help the citizens, so they allow people to deduct half of the amount they had to pay from their income taxes.

Other than that, experts say that you don’t even have to itemize to claim this tax deduction, which is always great!

5. Check if you’re eligible for an Earned Income Tax Credit

There are people who aren’t required to pay federal income taxes, so if you’re one of them, we have news for you. The good thing is that you can still get a refund from the American government. For the tax year 2023, the earned income tax credit is actually a refundable tax credit that is up to $7,430. That’s a lot of money.

Experts say that when the officials calculate this, they use a specific formula and also take other criteria into consideration, such as the size of your family as well as your income.

This means that for 2023, for simple taxpayers that have no children, the income limit for the credit range is roughly $17,640, while for married people who file jointly and have at least 3 children, the amount of money goes up to $63,698.

6. Donate to charity

Donating to charity will not only make you feel better knowing that you helped someone in need, but it can also help you pay less in taxes. Speaking of that, experts say that all the charitable contributions that are made with cash, payroll deductions, or donations of clothing items or any other goods can all be deductible.

Generally speaking, you should itemize in order to claim a deduction, but given the fact that the 2017 tax reform almost doubled the standard amount of deductions, many people choose not to do it.

You can still donate to charity and manage to pay fewer taxes, but you should set up a donor-advised fund to do so. Accountants say that all these funds are actually deductible in the same year they’re made, but the donations can be sent to different charities over the years.

This gives taxpayers the chance to combine many years’ worth of donations into a single year, which then allows itemizing deductions.

7. Upgrade your home

If you were looking for a way to upgrade your home, boost its value, and also find a method to reduce the amount of taxes you have to pay, we know exactly how you can do so.

Did you know that the Inflation Reduction Act of 2022 expanded and prolonged federal tax credits for updates related to energy efficiency for both homes and businesses?

From then until 2032, homeowners can claim up to $3,200 in credits for specific home improvements they choose to make to their properties, such as insulation, heat pumps, or energy-efficient doors and windows.

Moreover, they also offer a separate credit for installing solar panels, geothermal systems, wind energy, and battery storage, so you should definitely consider investing in these home upgrades.

… What do you think about these legal methods of lowering the amount of taxes you have to pay? Would you consider trying any of these? Leave a comment below and let us know what you think!

…If you want to know more about taxes, here’s another article that will help you out: 13 US States With The Highest Death Taxes!