This is one of those scary topics which people don’t even want to talk about. But I also feel if this was taught to children in schools then it wouldn’t be so scary in the future. If you are well versed with tax law, then you must know much money
you can end up saving in a year. There are lot of ways to plan your taxes in a way which can give you a lot of advantages. The interesting thing is that you don’t even have to learn all the tax laws, you just need to be aware enough to ask for a professional help. There is a reason why tax
lawyers and CAs are in so much demand at the moment. Let’s take a look at some of the steps you can take by yourself to save some of those previous taxes.
You might have never paid much attention to this form of trading especially if you are new to the game. But one of the attractive features of this bond is the fact that the interests on it are tax exempted at the federal level. They might even be exempted at the state level, but you will have to check that depending on where you live.
What municipal bonds mean is you lending money to the state or government entity for a certain amount of time and at a fixed rate. The amount invested along with the interest gained will be returned to the investor when the maturity period gets completed.
There are two main reasons why someone would go for this option rather than the corporate bonds. The first one being safety, historically municipal bonds have been safer and witness much less default rates. The other reason being its tax exempted status. This is why people still opt for these even though corporate bonds have higher interests.
L0NG TERM CAPITAL GAINS
If you were anyways thinking about investing in stocks, equity or real estate then along with short term gains you should also think about long term options. This is for two reasons, first one being good future planning and a way to amass wealth and the other being exemption from taxes.
The difference in time periods of short- and long-term capital gains is one year. If you hold on to an asset for more than a year you might be eligible for favorable tax treatment.
There are broadly three categories of taxes on long term gains, 0%, 15% and 20%, which one will apply to you will depend on your income level. For example, if you are a single person with income below $40,000 then any long-term capital gains will be tax free. If you are a couple than that limit is $80,000.
STARTING A BUSINESS
This tip might seem odd in the beginning but hand on for just one minute. Not only will this method be useful in generating a little bit of side income, but businesses also offer a lot of tax advantages.
For example, if you are self-employed, health insurance premium can be written off from your tax obligations. Not only this but your internet bills, even travel expenses and other utilities can also be deducted from your personal tax obligation.
USING RETIREMENT ACCOUNTS AND EMPLOYEE BENEFITS
If your company offers some sort of a workplace retirement plan you can contribute extra income to it till about $19,500 and that contributed amount will be written off from your tax obligations. Even if you company does not have a retirement plan can also use this provision to some extent. If you contribute till $6,000 to a traditional individual retirement account in 2021 then that amount will be deducted from tax.
IRS offers numerous tax credits for different kinds of people while targeting the lower income population. For example, a low taxpayer can claim some tax credits with 3 or more qualifying children.
Another option is the saver’s credit. This is targeted more towards lower- and middle-income people. if you have been planning to save for retirement, you might be eligible for a credit about half as much as you have contributed to either a plan, IRA or ABLE account.