Taxes are a necessary part of our lives, but they can also take a significant chunk out of our income. With the right strategies and tax planning, you can protect your income from taxes and keep more of your hard-earned money in your pocket.
In this article, we’ll explore 7 ways to protect your income from taxes.
Contribute to a Retirement Account
One of the best ways to protect your income from taxes is to contribute to a retirement account. Whether it’s a 401(k), an IRA, or another type of account, contributing to a retirement account can reduce your taxable income.
The money you contribute to a retirement account is not taxed until you withdraw it, which means you can defer paying taxes on that money until you retire and are likely in a lower tax bracket. Some employers offer matching contributions to their employees’ 401(k) accounts, which is like getting free money.
Take Advantage of Deductions
Deductions are expenses that you can subtract from your taxable income, which can reduce the amount of taxes you owe. There are many deductions available, including deductions for charitable contributions, mortgage interest, medical expenses, and more.
Keep track of your expenses throughout the year and collect all the deductions you’re eligible for when you file your taxes.
Consider Tax-Advantaged Investments
Tax-advantaged investments are investments that offer tax benefits. For example, municipal bonds are exempt from federal income tax, which means you can earn tax-free income from them.
Another example is a health savings account (HSA), which allows you to contribute pre-tax dollars to pay for medical expenses. By investing in tax-advantaged investments, you can reduce your taxable income and keep more of your money.
Invest in Real Estate
Real estate is another way to protect your income from taxes. When you own rental property, you can deduct expenses such as mortgage interest, property taxes, and repairs from your taxable income.
You can also take advantage of depreciation, which is a tax deduction for the wear and tear on your property. Real estate can be a great way to build wealth while reducing your tax burden.
Start a Business
Starting a business can also be a way to protect your income from taxes. When you own a business, you can deduct many expenses from your taxable income, including office expenses, travel expenses, and more.
Take advantage of tax deductions for business losses. Although starting a business can be challenging, it can also be a way to reduce your tax burden while building wealth.
Use Tax Credits
Tax credits are like deductions, but they are even more powerful because they reduce the amount of taxes you owe on a dollar-for-dollar basis.
There are many tax credits available, including the child tax credit, the earned income tax credit, and more. You’ll be able to get all the tax credits you’re eligible for when you file your taxes.
Hire a Tax Professional
Finally, hiring a tax professional can be a great way to protect your income from taxes. A tax professional can help you take advantage of all the deductions and credits you’re eligible for, and they can also help you avoid costly mistakes that can result in penalties and interest.
A tax professional can also help you plan for the future, so you can reduce your tax burden over the long term.