As tax season approaches, most taxpayers are concerned about finding ways to decrease their taxable income. Utilizing these tax sheltering tips can help taxpayers save a significant amount of money on the amount of taxes that they owe. Here are three simple ways to reduce your taxable income:
1. Utilize Retirement Plans – Of course retirement vehicles are important in terms of planning for retirement; however, they are also beneficial for saving on taxes as well. They can reduce the amount of business and personal taxes owed. In some instances, business owners may defer taxes on $50,000.00 of income per year using a 401(k). In addition, retirement plans can also reduce the amount of payroll taxes owed. Taxpayers should keep in mind that creating a retirement plan can be a fairly involved process, so do not wait until the end of the year to utilize this strategy.
2. Make Charitable Donations – Making charitable donations is a great way to reduce your taxable income. In particular, capital gains taxes on appreciated securities can be offset by donating the securities to a charity.
3. Think Green – Congress enacted a $500.00 tax credit for energy – efficient home improvements, such as new windows and doors. Keep in mind that this $500.00 credit is the maximum, so if you claimed this deduction in a previous year, then you cannot do so again. Also, Congress enacted various restrictions on certain household projects. For example, the maximum amount that you can claim for new energy efficient windows is $200.00. Congress also enacted another credit for homeowners who install alternative energy equipment. Examples of such equipment include solar electric systems, solar hot water heaters, and wind turbines.