No one wants to pay taxes, but it is all something we have to do. However, there are ways to minimize your taxable income that will reduce how much you owe in taxes. There are three common tax strategies to consider to reduce your taxable income – retirement, deductions, and life insurance.
The first tax strategy to minimize your table income is retirement savings. If you are employed, contribute to your 401(k) with pre-tax dollars. The amount of pre-tax dollars you put into a retirement account will reduce your overall income, which reduces the amount of taxes you owe. If you qualify, you can also make tax-deductible contributions to an IRA. If you are self-employed, contribute to a Keogh, SEP, or SIMPLE plan to reduce your taxable income.
A second tax strategy is to maximize your deductions. Medical expenses and charitable donations are two types of deductions to consider. Make sure you are reaching the threshold if there are any on your deductions. You will be able to use the amount in these deductions to reduce your taxable income.
The last strategy to minimize your taxable income is life insurance. Some plans will provide your family with liquid cash. The money your family receives could be free of income or estate taxes if they are structured properly. Consult an expert on this to ensure your family won’t owe taxes on any money from a life insurance plan.
