3 Tricks To Help Reduce Your Tax Liability
Of course, patriots must pay their taxes. However, many of us usually desire to pay less that what we ought to pay. But do you know that it is legally possible to pay less than what you normally do by simply looking at various ways in which you can save a buck or two?
Here are three ways through which you can reduce your liability:
Make Use Of Tax Credits
The first thing that you need to do if you want to reduce your tax liability is to make sure that you increase the number of items that will help reduce your taxable income. These are expenses that are commonly referred to as tax deductible expenses. Most of these expenses are mainly exempted by the IRS because the government wants to encourage certain habits among taxpayers. For example, the government will encourage people to make charity contributions by exempting charity contributions to qualified institutions from taxation. It also encourages home ownership by exempting certain contributions to mortgages from taxation.
Make Payments Early
Though many people do not know, a good amount of liability can also increase because of penalties and fines. Although it makes theoretical sense for you to delay until the last day of filing the returns before making your payments, it makes more practical sense if you file your returns early and pay any outstanding amounts before the deadline. This way, you will be able to avoid any tax penalties as a result of lateness in submissions and hence your liability will not be increased.
Increase The Withholding Tax
This is the tax that is paid earlier on in the year through the various mechanisms. Although it does not necessarily reduce you tax budget for the whole year, it helps spread the tax burden throughout the year and therefore causing you to owe less at the end of the year. In fact, sometimes you may find that it is the government who owes, you. Just like with early payments, some people would argues that this is not advisable because it causes you to lose out on interest rate. However, unless you have a dedicated team around you to see whether you have filed tour tax returns and who are able to follow up with every single pence that you might gain or lose, it is important that you forfeit the expected interest for the peace that comes with filing returns early.
Whenever you set out to reduce your tax liability, always try to avoid taxes without evading them. The moment you realize that you are getting into something that is somewhat illegal, back out and get to the straight path once more.
by: David de Souza
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