As we know, taxes are the contribution from a business towards the government treasures. The government uses the amount collected from taxes in available facilities to the residences and development of the country. The USA government generates a large amount of revenue from taxes. For instance, it is $3.71 trillion is the estimated revenue from taxes to be generated this fiscal year.
No doubt, taxes are the main source of revenue for a government, but it is an expense for a business as well as for a salaried individual. They spend thousands of dollars to pay tax on their income and gives a part of their income as a tax to the government. Also, it disturbs the overall budget of a business by increasing its expenses. There is a variety of ways in which you can save your tax amount legally. You can opt from possible tax strategies that are legal and save thousands of dollars. You can easily save your income by implementing some legal hacks during tax planning.
Have a look at some of the best tax strategies you can use to save your tax.
1. Contribute to IRA:
IRA stands for Individual Retirement Arrangement that provides tax advantages under section 403B. It is a tax-free contribution towards a retirement saving plan and not deductible under any tax law. IRA allows you to contribute an amount of up to $6500 every year. There is no need for a tax return for this contribution as it is a tax after five years. It is great for all the individuals who want to save income from the taxes legally. All you need to do is to start contributing a part of your income to IRA. Along with tax benefits, it acts like a saving, which means you can withdraw your amount any time without penalty.
2. Employer-Sponsored Retirement Plan:
Similar to IRA, you can also contribute a part of your taxable income to the Employer-Sponsored Retirement plan. You can contribute to this plan under section 401(k) and 403(b) to save your tax. Experts consider this as one of the best options to reduce taxable income. According to the income tax department, you can contribute up to $19000 every year under section 401(k) and 403(b). Suppose you earned $100000 from your business and need to pay $2000 as income tax. You reduce this tax to $1000 only by contributing a part of your income to the Employer-Sponsored Retirement plan. Not only it saves your tax, but it also secures your future after retirement. You will get dual benefits from the employer by contributing to this plan. So, I suggest you should discuss with your employer and contribute your income accordingly.
3. Flexible Spending Account:
Flexible Spending accounts are opened by employers so that their employees can meet medical and childcare expenses. Interestingly, this account is tax-free and no taxes are charged to contribute funds to it. You can contribute up to $2700 into a flexible spending account and withdraw the amount whenever you need. This limit can be increased by consulting an Income tax officer and showing a valid reason for him. One best thing about this account is it considers the whole family, not a particular individual. It means your account limit will increase if there is an increase in your family. The limit of this account can be increased up to $7000 for couples and a family. If you want to save your income from taxes, you must contribute a part of your income towards a flexible spending account.
4. Education Funds:
Like IRA and FSA, Education funds are also free from tax and exempted under section 401(k). You can contribute to education funds according to the 529 plan hassle-free without paying any additional charges. Education funds deal funds used to pay all the expenses related to education. Also, the assets that fall under the 529 plan are eligible for exemption from the tax. You can contribute up to $10000 per beneficiary in an assessment year. However, an individual has to pay 10% as a penalty if you withdraw the amount from 529 education funds under the 529 plan before maturity. I suggest you should save your tax by using this method and wait for the maturity period to make a withdrawal.
5. Tax Credits:
The best way to save your tax is to take advantage of all tax credits initiated by the government. It might be a lengthy process but is very beneficial in terms of tax saving. According to law, a single filer can claim a deduction of $12000, and a married couple can claim up to $24000. If you had taken a home loan, you can claim an advantage on your mortgage interest using Schedule A (1040 form). The government of the USA made it very easy to itemize a deduction to protect your income from taxes. So, never miss any tax credits or advantages on tax payment to save your taxes.
Taxes are the main source of income for the government of a country. Every individual is responsible for paying the tax imposed on his income and contribute to the country’s development. Meanwhile, these taxes disturb the overall budget of a person by increasing its expenditure. Many ways are there by which you can save your income from taxes. You can opt for various tax-saving strategies that help you in saving your tax legally. Make these strategies a part of your tax planning and manage your overall budget in a better way. So, if you are looking to protect your income from imposed taxes, then follow above mentioned strategies for expected results. visit us: UBOS