we all want to pay less in taxes but not many people know how to go about it the rich
get richer because they know how to cut down expenses and maximize their income
paying fewer taxes legally is one game the rich folks in high towers have mastered pretty well
finding legal ways to minimize taxes is a practice almost anyone can master no matter your income
net worth or tax bracket the current federal income tax bracket spans from 10 percent to 37
but if you're smart about claiming deductions and credits you can get away with paying less in taxes
if you want to stay on track with your various financial expectations then saving money on taxes
is a must you can achieve this by documenting all of your expenses that could potentially
be deducted from your income experts have suggested that there are more opportunities
for tax reductions for self-employed individuals and business owners nevertheless salary earners
could reduce their tax obligation in some ways too you need to understand that results are not cast
on stone what works for peter may not exactly work for paul also you may not need all the strategies
to achieve your financial targets but a careful application of some of these suggestions could be
a great help to you at this point i'd like you to do something pause this video right now hit
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different ways you can pay fewer taxes legally one retirement account the first thing you may want
to do is to contribute to a retirement account retirement account contributions are a top tax
reduction tool and you can take advantage of them contributions to traditional 401k and ira accounts
can be deducted from your pre-tax income as a result this could reduce the amount of federal tax
you need to pay these funds grow entirely tax-free until your retirement at the age of 59 and a half
currently taxable income can be reduced for contributions up to 19 500 to a 401k or 403 b plan
if you're 50 or older then you could add 6500 to the basic workplace retirement plan contribution
to get a clear picture of how this works let's look at this example let's say you earned an
income of a hundred thousand dollars in twenty twenty if you contributed nineteen thousand
five hundred dollars to a 401k that will reduce your taxable income to only eighty thousand five
hundred dollars contributions to workplace 401k accounts must be made by the end of the calendar
year but contributions can be made to traditional iras up until the april 15th tax filing deadline
currently if you don't have a retirement plan at your workplace you can get a tax break by
contributing up to six thousand dollars to a traditional individual retirement account ira
if you're 50 and older then you can contribute up to seven thousand dollars it's best to start
early with these practices so that these accounts could help secure your retirement
2. hsa if you have an eligible high deductible health insurance plan you can use a health
savings account hsa to reduce your taxes this is similar to the assets in a retirement account
for 2021 the maximum deductible contribution level to an hsa is three thousand six
hundred dollars for an individual and seven thousand two hundred dollars for a family
these funds can then grow without the requirement to pay tax on the earnings
contributions to these accounts offer the following benefits one immediate tax deduction two
funds grow without being taxed and can be withdrawn tax-free for qualified medical expenses
three any balance left at the end of the year can roll over indefinitely
3. standard deduction this is the basic amount that you can deduct from your total taxable income
this is quite simple to understand and apply anyone can do this let's pretend you're single
or married and you earn sixty thousand dollars in 2021 if you're filing separately you can take
twelve thousand five hundred and fifty dollars and you'll be taxed as though you earned forty
seven thousand four hundred and fifty dollars if you're married and you're filing jointly with your
partner your standard deduction for the year will be 25 100 if you file as the head of a household
you get 18 800 in the standard deduction taxpayers who are at least 65 years old or
blind can claim an additional standard deduction of 1 350 the additional deduction amount is
doubled for anyone who's both 65 and blind these figures slightly differ from the previous year
4. start a business having a side business offers many tax advantages
self-employed individuals whether full-time or part-time are qualified for several tax deductions
this means your freelance projects or other side gigs could get you considerable tax savings
expenses incurred in the course of daily business can be deducted from your overall income
this could cut down your total payable tax for self-employed individuals the following deductions
can be made 1. health insurance premiums are available if certain requirements are met
if you pay for your health dental or long-term care insurance those payments may be a deductible
too 2. a business owner may deduct part of their home expenses with the home office deduction
this could be done by strictly following internal revenue service irs guidelines three
the percentage of utilities and internet used in the business may also be deducted from income 4.
business-related vehicle mileage 5. shipping advertising and website fees
6. professional publications dues and memberships 7. business-related travel eight
office supplies and nine any expenses incurred to run your business
to get it right and safe make sure you maintain proper records some of these claims are disallowed
because taxpayers don't keep proper documentation so keep receipts mileage logs or other records
you may need to produce these documents in the event of an audit 5. credit for higher education
the u.s government offers valuable tax credits to help offset the cost of higher education
the american opportunity tax credit can be claimed for the first four years of college
it provides a maximum credit of two thousand five hundred dollars per student per year
this is a credit which means that the amount is deducted from whatever tax you might owe
the government if the credit exceeds the amount of taxes you owe up to a thousand
dollars could be refundable to you there's also the lifetime learning credit which is great for
adults boosting their education and training this credit is worth up to two thousand dollars per
year and helps pay for college and educational expenses that could improve your job skills
six state in local tax breaks look for ways to reduce your tax burden in the state
and local categories the federal tax reform law eliminated miscellaneous deductions but
many states still allow them or they may have a lower threshold for claiming them
no matter where you live check with your local and state taxing authorities you could see what
deductions might be available for you 7. check if you qualify for an earned income tax credit
you could get a refund from the government even if you're not required to pay federal income taxes
for the year 2020 the earned income tax credit is a refundable tax credit of up to six thousand six
hundred and sixty dollars the earned income tax credit eitc is calculated with a formula that
considers income and family size the income limits for the credit range from fifteen thousand eight
hundred and twenty dollars for single taxpayers with no children to fifty six thousand eight
hundred and forty four dollars for married couples filing jointly who have three or more children
eight charitable donations it's easy to forget the non-cash contributions but charitable
contributions made with payroll deductions checks cash and donations of goods and clothing are still
deductible although these deductions are often overlooked they add up still all you need to do
is to itemize to claim a deduction since the 2017 tax reform nearly doubled the standard deduction
many people chose not to itemize but the coronavirus aid relief and economic security act
or carers act allows taxpayers who don't itemize to deduct cash donations of up to three hundred
dollars made before december 31 2020 9. adjust your basis for capital gains tax according to
investors when calculating the cost basis after selling a financial asset make sure you add in all
the reinvested dividends that increases the cost basis and reduces your capital gain when you sell
the investment for instance if you sell your house you may end up paying capital gains tax as well
it will be so especially if your property's value has risen significantly single taxpayers can get
exempt up to 250 000 of their homes appreciation from capital gains tax while married couples can
get a 500 000 exemption the irs allows the exemption to be claimed once every two years
you can reduce how much you owe if you've made home renovations or improvements according to
experts any investment you make could be deducted from the capital gains 10. invest in municipal
bonds to buy a municipal bond implies lending money to a state or local governmental entity for
a set number of interest payments over a specific period if you make this kind of investment once
the bond gets to its maturity date the full amount of the original investment will be repaid to you
interest on municipal bonds is exempt from federal taxes and may also be tax-exempt at the state and
local level this could be determined by the place where you're living investors find municipal bonds
attracted because of tax-free interest payments 11. donate highly appreciated stock to charity
you can use stocks to make charitable gifts this is another way to avoid capital gains tax
stocks that had big gains can be moved directly into a donor-advised fund experts say money moved
into a donor-advised fund is not only exempt from capital gains tax but can also be deducted by
those who itemize you can start donor advised funds with as little as five thousand dollars
now that you've seen the various ways you can pay fewer taxes legally you must understand the
difference between tax avoidance and tax evasion the two may look the same but in simple terms
one is legal while the other is criminal tax avoidance is legal tax evasion is criminal
tax avoidance helps you to pay lower tax bills by arranging your transactions so that you can reap
the largest tax benefits if properly done this is completely legal on the other hand tax evasion is
an attempt to reduce your tax liability by deceit or concealment this is an offense punishable by
law the question now is how do you know when tax avoidance efforts go beyond the legally accepted
practice the distinguishing factor lies in whether the decisions have been made with fraudulent
intentions or not when tax planning goes too far and crosses the line it becomes illegal this is
the reason why business owners face more scrutiny than salary earners who are on the same income
level business owners have more options to avoid taxes and these options could be legal or illegal
here are some ways business owners engage in tax evasion which could bring them into conflict with
the irs deliberately under reporting or omitting income keeping two sets of books and making false
entries in books and records claiming false or overstated deductions on a return claiming
personal expenses as business expenses hiding or transferring assets or income it'll be a good
idea to seek help from a qualified tax planner before applying any complex tax avoidance idea
this step could save you a lot of money and also keep you safe from legal tensions
here are some videos you could also watch don't invest in the stock market until you watch
this video 14 signs you're not ready to be rich well folks thank you so much for watching and i
do hope you learned a thing or two with that said have a great day and i'll see you all in the next