{"id":38700,"date":"2023-10-27T11:41:47","date_gmt":"2023-10-27T18:41:47","guid":{"rendered":"https:\/\/financer.com\/?p=38700"},"modified":"2024-09-09T08:23:06","modified_gmt":"2024-09-09T15:23:06","slug":"how-to-pay-less-taxes","status":"publish","type":"post","link":"https:\/\/financer.com\/personal-finance\/articles\/how-to-pay-less-taxes\/","title":{"rendered":"15 Legal Ways to Pay Less in Taxes and Keep More of Your Money"},"content":{"rendered":"\n

Taxes are difficult to avoid and seem to occur everywhere\u2014on our paychecks, our property, and nearly every purchase. But there are credits, deductions, and strategies that can legally help us reduce our taxable income, and pay less in taxes.<\/p>\n\n\n\n

It’s important to know your options and retain more of what’s rightfully yours. <\/p>\n\n\n

File Today 100% FREE!<\/a><\/div>\n\n
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Key Takeaways<\/h3>\n
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  1. Contribute as much as possible to your IRAs and employer retirement plans<\/strong>.<\/li>\n \n
  2. For parents, utilize the Child Tax Credit<\/strong> for up to $2,000 per child and the Child Care Tax Credit<\/strong>, offering 20% to 35% off child care expenses.<\/li>\n \n
  3. If you’re a low to moderate-income family, check your eligibility for the Earned Income Tax Credit<\/strong>.<\/li>\n \n
  4. Add pre-tax funds to your Health Savings Account<\/strong>\u00a0up to the 2023 limit of $3,850 (individual) or $7,750 (family).<\/li>\n \n
  5. Strategically use your Flexible Spending Accounts<\/strong>\u00a0to avoid leaving money unspent.<\/li>\n \n
  6. If your health and medical expenses surpass 7.5% of your AGI<\/strong>, consider deducting them.<\/li>\n \n
  7. Boost your savings and benefit from the Saver\u2019s Credit<\/strong> by contributing to retirement plans, especially if you’re a low-to-moderate income earner.<\/li>\n \n
  8. Adjust Your W-4:<\/strong> More of a tax budgeting tool. Align your withholdings with your life changes or financial strategy.<\/li>\n \n
  9. Make charitable donations<\/strong> to both support causes and decrease your taxable income.<\/li>\n
  10. High earning investors should consider municipal bonds for your taxable investment account.<\/strong><\/li>\n
  11. Investors utilize tax-loss harvesting<\/strong>: Offset capital gains by strategically selling securities at a loss. Be cautious of the wash-sale rule.<\/li>\n
  12. Strategic Asset Location<\/strong>: Depending on your tax bracket, consider the tax-efficiency of your investments and where they are located, be it in taxable or tax-advantaged accounts.<\/li>\n
  13. Wealthy investors can defer capital gains taxes by investing in economically-distressed communities, known as opportunity zones<\/strong>. Long-term investments can also enjoy tax-free appreciation.<\/li>\n
  14. If purchasing a new electric or fuel cell vehicle, you could be eligible for an electric vehicle tax credit<\/strong> of up to $7,500, depending on the vehicle’s specifications and service date.<\/li>\n
  15. Look into real estate tax benefits like bonus depreciation, cost segregation, and the 1031 exchange<\/strong>, often used by the ultra-wealthy, to maximize investment returns.<\/li>\n<\/ol>\n

    \n\t File your Taxes Now <\/a>\n\t<\/p><\/div>\n\n\n\n\n

    1. Max out IRA and Employer Retirement Contributions<\/strong><\/h2>\n\n\n\n

    Take advantage of the tax benefits offered by the IRS through qualified retirement plans<\/a>. Whether you’re looking to save on taxes today or in the future, these accounts help.<\/p>\n\n\n\n

    2023 Contribution Limits<\/strong><\/h4>\n\n\n\n

    401k<\/strong>: Standard limit of $22,500<\/strong>. For those over 50, it increases to $30,000 – known as catch-up contributions<\/a>. <\/p>\n\n\n\n

    IRAs<\/strong>: Standard limit is $6,500<\/strong>, rising to $7,500 for those above 50.<\/p>\n\n\n

    Open an IRA Today<\/a><\/div>\n\n\n

    Contribution Types<\/strong><\/h4>\n\n\n\n
    Type<\/strong><\/th>Definition<\/strong><\/th>Benefit<\/strong><\/th>Example<\/strong><\/th><\/tr><\/thead>
    Pre-tax Contributions<\/strong><\/td>Money saved or invested before<\/em> any income taxes are applied.<\/td>Reduces your taxable income for the current year, offering immediate tax savings.<\/td>If you earn $60,000 annually and contribute $5,000 pre-tax to your 401(k), your taxable income becomes $55,000. At a flat tax rate of 20%, this saves you $1,000 in taxes for that year.<\/td><\/tr>
    Post-tax Contributions<\/strong><\/td>Money saved or invested after<\/em> you’ve already paid income taxes on it.<\/td>Offers no immediate tax deduction. However, future withdrawals, including earnings, are tax-free.<\/td>If you invest post-tax money, you don’t get a deduction now, but when you withdraw in retirement, everything, including gains, is tax-free.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

    Things to Keep in Mind<\/strong><\/h4>\n\n\n\n