About 50% of Americans think they pay too much in federal income taxes. Few people like to pay taxes, but they’re necessary to get the services we depend on.
It could be that you’re not taking advantage of the tax code. The tax code gives incentives to drive certain behaviors that keep the economy strong.
You can find out how to lower your taxes by looking at what policymakers value most. They want people to buy homes, raise families, and have good-paying jobs.
Which are the top ways to lower your taxes? Read on to discover what you can do to reduce your taxes.
1. Check Your Withholdings
Employees submit a W-4 form that’s used to calculate federal tax withholdings. Your employer might be withholding too little in taxes, which results in a tax bill.
Use the IRS tax withholding calculator and adjust your withholdings with your employer.
Are you self-employed? You should be paying estimated quarterly taxes. See where your income is compared to the previous year.
You’ll need to compare that with the amount of taxes you paid in the past. You might need to pay more if you’re earning more than in previous years.
2. Reassess Your Investment Portfolio
How does your investment portfolio look this year? If you have stocks that are losing money, it might make sense to sell them for a loss.
You can deduct losses up to $1500 for single filers, and $3000 for those filing jointly. Be careful not to dump the stock at the end of the year just to get the tax deduction.
If you repurchase the stock in 30 days, you lose the deduction. Only sell the stock if it doesn’t work for your portfolio.
3. Get Professional Help
The tax code is thousands of pages long. If you have property, investments, and you want to know how to lower your taxes, it makes sense to get help.
There are plenty of tax advisors and wealth managers to work with. According to WealthAbility tax advisors, look for a tax advisor that creates a long-term strategy and meets regularly with clients.
4. Take Business Deductions
Did you start a business this year? This changes how you do your taxes. Sole proprietors will report business income and expenses on a Schedule C form.
You want to make sure you take all of the deductions that you’re entitled to. These include advertising, rent, office supplies, inventory, and insurance.
5. Save for Retirement
Saving for retirement is another way to lower your taxes. If you have a 401k at work and make contributions right out of your paycheck, that reduces your taxable income.
You can contribute up to $19,500 in 2021. If you’re over 50, you can contribute another $6500.
A Few Tips on How to Lower Your Taxes
You can’t avoid paying taxes, but you can use the tax code to lower your tax bill. These tips provided insights as to how to lower your taxes and save money.
If you want more financial tips, be sure to check out the other articles on the blog.