Knowing Your Options: 5 Legal Ways To Reduce Taxes In Any Household
Taxpayers review effective ways to keep more of their money each year. Understanding how tax deductions work helps the taxpayer determine which deductions apply to them and their families. Reviewing 6 legal ways to reduce taxes in any household shows taxpayers deductions they might miss without knowing their options.
- Open a Health Savings Account
Opening a health savings account gives the consumer an account for saving funds to cover medical costs. The funds are accessible at any time and give the consumer extra money when their health insurance doesn’t cover a treatment, medication, or surgery fully. It is recommended that consumers determine how much of their earnings they can transfer into the healthcare savings account each pay period. Some savings are allowed by transferring a portion of the tax refund into the account, too. All funds that are transferred into the health savings account aren’t taxable until the consumer uses the funds. Tax Reduction Strategies such as health savings accounts help consumers reduce their taxes and keep more of their earnings.
- Contribute to a Retirement Plan
Contributing to a retirement plan helps the consumer avoid taxes for the earnings until they withdraw the funds during their retirement years. Employee-based retirement plans allow the consumers to transfer the funds from their earnings into the account before the earnings are taxed. The taxpayer avoids some tax implications by transferring the funds immediately. When the taxpayer starts to withdraw the funds from the plan, they will have to pay taxes. However, if the taxpayer changes jobs, they can roll the funds into a different account and avoid taxes.
- File Jointly With a Spouse
Filing jointly with a spouse gives the taxpayer more deductions and reduces how much they pay each year in taxes. A spouse is a dependent, and if they file together, there are more savings opportunities for taxpayers. As the head of the household, the taxpayer can maximize their deductions and get deductions for a family instead of just an individual. This lowers the taxpayer’s tax implications significantly. If they claim their spouse at the end of the year instead of during the year, the taxpayer gets a larger tax refund.
- Earned Income Credit for Children
Obtaining earned income credit for children gives the taxpayer more deductions and tax credits. Earned income credit is based on the total number of children and how much the family earned the previous year. The amount of dependents lowers the tax liabilities for the taxpayer and lets them keep more of their earnings each year. Taxpayers who have at least three children maximize their deductions and obtain the maximum for earned income credit.
- Donate To Your Favorite Charities
Donating to a favorite charities helps the taxpayer get more deductions for their tax return. Each time that the taxpayer donates clothing to a thrift store they can acquire a receipt for the donation. Donating directly to a charity gives them a tax deduction, too.
Taxpayers review options for deductions that lower their tax implications. A health savings account and retirement plans are options for transferring earnings without tax implications and lowering how much taxes the taxpayer pays each year. Adding a spouse and children to the tax return maximizes deductions and gives the taxpayer more tax credits and deductions. Reviewing all options helps the taxpayer determine what options improve their chances of a higher tax refund.