One of the common financial planning concerns among most individuals and entrepreneurs is how to lower their income taxes. If you are in the high tax bracket then you are likely to pay heavy taxes that are difficult to avoid. However, there are several strategies that as a high taxpayer you can easily implement in order to reduce your taxes and save money every time you file your returns.
It is also important to note that these strategies can take some of your time and effort and at times can be too complex to understand. Therefore you must consider taking tax planning services from experts to achieve effective results efficiently.
1. Invest in municipal bond
Municipal bonds are one of the greatest ways of reducing your taxes. In the case of municipal bonds, you basically lend money to state or local governmental entities for a set number of interest payments for a predetermined period. Generally, interest on municipal bonds is exempt from federal taxes but for state or local levels it primarily depends on the rules and regulations.
2. Start a business
Starting a side business always comes with many tax advantages. When you own a business, many expenses are deducted from your income, which helps in reducing the number of total tax obligations. As per Internal Revenue Service (IRS) guidelines for business owners, you will be able to deduct part of your home expenses along with the home office deductions.
3. Target for long term capital gains
Stocks, mutual funds, bonds, and real estate are some of the best long-term capital gain options available in the market. Investors can enjoy preferential tax rates on capital gains depending on their income levels. To understand more about capital gains it is suggested to hire tax planning services in Peoria IL so that you can manage your taxation process effectively.
4. Retirement accounts and employee benefits
In 2022, the government will allow taxpayers to save some money in the taxation process by simply contributing to their workplace retirement plans. On the other hand, employees, who don’t have a retirement plan at their workplace can still get a tax reduction by contributing to a traditional individual retirement account (IRA) in 2022.
5. Use a Health Savings Account
Health Savings Account is the plan available for individuals or employees that have a high-deductible health insurance plan. One of the best parts about contribution to these funds is that they can grow without the requirement to pay tax either on earnings or at the time of withdrawals for the payments of qualified medical expenses.
6. Claim tax credits
Whether you qualify for tax credits or not depends mainly on your income, marital status, and the number of children you have. There are several IRS tax credits that can help in reducing tax for individuals, you must make sure to seek expert advice in case of identity the claim that fits well with your income return.
We hope with the above-mentioned information you will be able to plan your tax return accordingly. If this is your first time filing your tax return then it becomes extremely important to seek expert advice to fulfill all your tax obligations appropriately and on time.