How to lower your tax payments
Unless you want a knock on the door from Uncle Sam, there’s no way to get around paying your taxes. There’s simply a cost to living and making money in the United States.
However, we can show you plenty of ways to lower your tax payments that are actually beneficial to you or others in the long run. Here’s how.
Give to charity
When you give money, you get a break. The government wants to incentivize giving by giving tax credits. You can simply write off a charitable contribution when you itemize your other deductions. This includes anything from a cash contribution of thousands of dollars to your charity of choice to donating a few gently used shirts at Goodwill. Every little bit you give is worth something, so be sure to consult your tax professional to make sure each of your charitable contributions is counted.
Increase 401(k) contributions
Any time you contribute money to your 401(k), you’re decreasing the amount you owe on your taxes. 401(k)s allow you to plan for your own future while getting a break. The more you contribute, the less you can count as your “taxable income,” thereby lowering your taxes. You might not have as much spending cash on hand right now, but it’s a sound financial investment for the future.
Adjust your withholding
It seems counterintuitive. After all, you don’t want to owe money when tax season comes along… or do you? If you’re financially responsible enough to plan, you can adjust your withholding for the bare minimum. That way, you can use the tax money that would otherwise go to the government and put it in a savings account that will accumulate interest, actually making you money. Then, when April comes along, you can use the money that you set aside to pay off your debt to the government, while saving the interest you’ve accumulated. It doesn’t actually lower your tax bill, but it does make you money that you never would have otherwise had if the government took it from you right off the bat.
Don’t skip the deductions
A dollar here and a dollar there might not matter to you much in the long run, but odds are you can deduct more than you even imagine. Review Schedule A, a full list of deductible expenses and learn exactly what you can deduct next tax season. Then, keep records of each. When you deduct an expense, it subtracts that expense from your taxable income. For example, if you make $50,000 a year but you can claim $5,000 in allowable deductions, you will only be taxed for $45,000.