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6 ways to cut tax obligations

On Behalf of | May 25, 2022 | Tax Planning

Paying taxes may be unavoidable when someone earns a sufficient amount of income. The federal tax code does allow for legal ways to reduce obligations. New York taxpayers could explore such legal avenues to save money when filing their returns with the IRS.

Common ways to cut taxes due

Investing money allows someone to save for the future and grow their net worth. Purchasing mutual funds, stocks, and other investment assets helps the cause. However, interest, dividends, and gains likely come with taxes. Contributing funds to an individual retirement account or an employment-based 401(k) allows for nontaxable contributions.

Municipal bonds are another possible option. These bonds may not be subject to federal income tax.

Similarly, self-employed persons who pay for health insurance might be able to take a deduction. The deduction could cut down on the taxable income tally. Employees might explore options under the health savings account (HSA) statutes if they qualify.

Three additional ways to possibly reduce taxes

Anyone who runs a business or works as an independent contractor may take legitimate expenses as deductions. Deducting gas mileage expenses or fees for necessary professional services are two possible deductions. When tax planning, make sure the deductions are legal to avoid potential problems with the IRS.

The tax code allows for scores of legitimate credits. These credits may stimulate the economy or provide assistance to families. Not all taxpayers take advantage of credits because they might not realize they qualify for them.

Charitable deductions could cut overall tax due amounts. Such deductions might even help a good cause.

The IRS may challenge some returns that take deductions or credits. Things could work out in the taxpayer’s favor upon proving they are legitimate.

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