Who doesn't like tax reductions? Although taxes are an inevitable part of life, it doesn't mean that there aren't completely legal ways to keep them to a minimum because no matter what time of year it is, it's always good to try to save on taxes in a smart way. With your tax filing deadline right around the corner, you'll be glad to know that there are different ways to reduce your taxes. So here are some important strategies you can consider to make this tax season much more enjoyable (not to mention thrifty):
1.- Contribute to your retirement account.
This is perhaps one of the easiest ways to save on your taxes, and it's a strategy used by most. If you work for someone else, you can contribute to your 401(k) plan with pre-tax money, thus reducing your income.
2.- Keep your records in order
This may not seem like it has much to do with reducing taxes, but keeping complete and organized records can help you save on taxes because it can prevent you from recreating information you previously had.
3.- Pay attention to your Form 1040 to spot missed tax opportunities.
This can help you spot after-tax savings opportunities. Pay attention to the sections of the form on taxable interest, tax-exempt income, and dividend income.
4.- Pay attention to life insurance.
Having life insurance can provide liquidity to pay estate taxes. It can pass tax-free if structured properly and is a necessary investment for everyone.
5.- Look for flexible spending accounts.
You can pay for medical expenses with tax-free money if your company offers flexible spending accounts.
6.- Donate your mandatory minimum distribution (RMD).
Starting at age 73, you can begin withdrawing money from your retirement accounts. This money is taxable, however, making a qualified charitable gift is one way to avoid taxes.
7.- Buy stocks.
The trick to this strategy is to buy the stock and hold on to it for a long period of time, as the tax rate on long-term investments is usually lower than on short-term investments.
Having different tax reduction strategies in place should play an essential role in managing your money and wealth, as once you do the math on the amount of money you make and the amount you keep without these strategies, it can become alarming. By doing any of these strategies correctly, you will be maximizing your earnings and savings rather than paying them to the government.