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While tax evasion is a federal crime, tax avoidance is a perfectly legal strategy that can help save you thousands of dollars per year. Tax avoidance is simply a means of looking through the tax code to find credits or deductions that could reduce how much you owe to the government. Let’s take a look at some ways that you can minimize your tax bill when strengthening your finances at the same time.
Contribute to a Retirement Account
If you have an IRA, 401(k) or a 403(b) account, contributions to that account could help to reduce your taxable income. For the 2019 tax year, you can contribute up to $19,000 to a 401(k) and $6,000 to an IRA. Contribution limits are higher for those who are 50 or older. Typically, you must contribute to a 401(k) by the end of the calendar year to obtain a tax deduction. However, you generally have until the date that your tax return is due to contribute to an IRA.
Deduct Expenses Related to Your Job
If you spent money searching for a job, those expenditures may reduce your taxable income for the year. The same is true if you incurred moving or other expenses after accepting a job offer. For those who are self-employed, regular and ordinary expenses may be written off. These expenses may include the cost of buying a company car, maintaining a home office or traveling to client meetings.
Sell Assets That Have Depreciated in Value
Each year, you are allowed to deduct up to $3,000 in capital losses on a tax return. Capital losses occur when you sell a stock, bond or other asset that has depreciated in value since your acquired it. Selling a vehicle to a sell my junk car company may also help you obtain cash that can be used to pay down a state or federal income tax balance.
Defer a Bonus Until Next Year
Deferring a bonus until the next calendar year may allow you to count that income on next year’s tax return. This may be ideal if accepting the bonus now would put you into a higher tax bracket or put your eligibility for government benefits in jeopardy.
It is never a good idea to pay more than you owe to the government. Ideally, you will work with an accountant or another financial adviser to ensure that you take advantage of any deductions that you may be entitled to.
Anica Oaks is a professional content and copywriter who graduated from the University of San Francisco. She loves dogs, the ocean, and anything outdoor-related. You can connect with Anica on Twitter @AnicaOaks.
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