Four Things You Can Do To Reduce Your Tax Liability

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Are you in a high income bracket? Perhaps you are in a lower income bracket, but you may find yourself with a tax bill each year because you do not have enough deductions. There are a few things you can do to lower your tax liability. Read on to learn four popular options others use to lower theirs. 

Invest in Your Retirement

If your employer offers a 401 (k) plan, take advantage of it. The money you choose to set aside into the plan is not taxable, which could result in you going down into a different tax bracket and lowering your tax liability. The drawback is that the IRS has an annual limit that each person can put into a 401 (k) plan. If you are age 50 or older, you can contribute slightly more than younger people. 

Choose Standard Deduction or Itemization Wisely

Do not automatically assume that the standard deduction is right for you. In some cases, it pays to itemize. Itemized deductions include donations to charities, mortgage interest, state income tax, mortgage points, and medical expenses. 

Let go of the notion that charitable contributions must be given in dollars. You can donate almost anything to the organization of your choice. Ensure you get a receipt to file along with your taxes. An example of a "big ticket" donation would be a vehicle that you donate. The rule of thumb is that if the itemized deductions are more than the standard deduction, tax payers should itemize.

Disburse Money Into Things You Need Now or Will Later

There are some things you are going to need at some point. For example, people with children may have plans for their children to further their education. They can start investing in this by putting aside money in a tuition plan. Also, take advantage of any types of insurance and assistance offered by your employer that requires you to also invest. Examples include health benefits and dependent care. Your payment portion is usually deducted prior to to taxes.

Make Plans for Future Tax Years

You may have waited too long to take advantage of reducing your tax liability for the current year. You can plan to put some of these into practice in the coming year or future years. 

An accounting and tax services company, like Cowan Digiacomo & Associates, is a good resource to use if you want to learn even more ways to lower your tax liability. Many of these companies have financial advisers and accountants working among their tax professionals, which ensures that you can get dependable tax and investment advice. You may have special tax circumstances that could allow them to uncover even more ways to lower your tax liability. For example, business owners may be overlooking some of the deductions they can take. 

21 November 2014