How to Pay Less Taxes?
Taxes can add up to be a big expense across your lifetime. So there are definitely ways and strategies to use in order to legally pay less taxes.
Taxable income is essentially the tax liability on various sources of income you have. Your different types of incomes may be subject to different tax requirements.
Now, some of these deductions are only eligible depending on the strategy you choose (itemized vs standard deduction).
This post is about how to pay less taxes.
Let’s dive into the top 5 ways on how to pay less taxes.
1. Contribute to 401(k)
Contributions to a 401(k) are pre-tax, which means they get deducted from your paycheck (if you’re a W-2 worker) before taxes are deducted. This is a great way to reduce your taxable income while setting aside money/investments for yourself in the long run.
2. Contribute to HSA
Similar to a 401(k), contributions to an HSA are pre-tax. However, instead of retirement, funds in this account will be used for eligible health expenses.
3. Deduct Student Loan Interest
Have a student loan? You’re in luck, because if you’re paying off your student loan, the interest you pay off is eligible to be deducted from your taxable income. Was that a mouthful? Basically, the interest that was accrued and paid off can be used to lower the amount of taxes you’re liable for.
4. Donations
Charitable donations are a way to reduce your taxable income. These donations would have to be towards an eligible charitable organization.
5. Tax-Loss Harvesting
If you made investments that lost value, you can sell them to realize the losses to offset some of your capital gains. Therefore, reducing your tax liability for these investments.
To reiterate, the top 5 ways on how to pay less taxes are:
- Contribute to 401(k)
- Contribute to HSA
- Deduct Student Loan Interest
- Donations
- Tax-Loss Harvesting
