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Over the last several years, finding ways to lower your income taxes has become harder. Many of the deductions available in the past have disappeared. Not paying your taxes is not an option unless you want to get in trouble with the IRS. And you certainly don’t want to have them knocking on your door!
However, there are some things you can do to reduce how much income tax you’re paying to the tax man. Don’t worry; these are legal and legit, but many don’t know about them.
Here is a list of 14 unconventional but legal ways to lower your income tax.
Open a Health Savings Account
Did you know that contributing to a Health Savings Account (HSA) may qualify as a tax deduction? Not only can they lower your income taxes if you’re paying for medical expenses, but they grow tax-free.
Tatiana Tsoir told U.S. News, “That’s money that never gets taxed if you spend it on medical (expenses).”
Contribute to an IRA
Paying money into your retirement accounts can also help lower your income taxes as they are tax-dereference. This also means you don’t pay any tax on interest or capital gains.
Some common retirement accounts people use are a 401(k) or a 403(b). Depending on how much you contribute, your deduction could be enough to drop you into a lower tax bracket, which is cheaper.
Claim Business Deductions From Your Side Hustle
Have you got a side hustle? Did you know that this can lower how much income tax you end up paying? This is thanks to tax deductions. So, take advantage of your hobbies to get lower taxes.
Some standard deductions include business-related advertising, home internet, travel, dues, membership, and office supplies.
Claim a Home Office Deduction
If you work from home, you may be able to use this to lower your income taxes, and it’s really easy. But there are some things you need to be aware of first.
For example, the room you’re calling your office has to be used exclusively as an office. A communal room like a kitchen or living room may not count as a “home office.”
Write off Travel Expenses
Did you know that travel expenses can be used to lower your income tax even if you’ve gone on vacation? Combining a business trip with your vacation can reduce the money you pay to the taxman.
This is perfectly legal as long as you write off legitimate expenses like airfare and even part of your hotel bill.
Donate to Charities
Lower your income tax while giving back to charities close to your heart. Things have changed since the Tax Cuts and Jobs Act in 2017, but you can write off charitable donations by setting up a donor-advised fund.
So, all donations in one year are deductible. Donald N. Hoffman from the Maryland office for Eisner Advisory Group told U.S. News, “That is a phenomenal opportunity for people who are charitable in nature.”
459 Plan Contributions
Save up for your children’s future education while lowering your income taxes with this unconventional but legal method. Some states allow residents to make deductions for contributions to 529 plans.
Another bonus is that withdrawals from these accounts are tax-exempt if the money is used for education.
Invest in a Qualified Opportunity Fund
A qualified opportunity fund is a great investment tool for earning money while lowering your income tax bill. These funds were created to boost investment in low-income areas.
Investing in one of these funds can defer capital gains tax.
Get Credit for Higher Education
Not many people realize this, but the government does offer tax credits to help offset the high cost of education. You can claim these credits for four years of college education with a maximum credit of $2,500 per student yearly.
This money can help pay for college fees and other educational expenses.
Itemize Sales Tax
How do you lower income taxes if you don’t actually pay income tax? People who live in places with no income tax, like Florida, can get a tax break from sales tax. So, keep an itemized list of your purchases and submit them to the IRS.
There is a limit of $10,000 in sales tax breaks.
Apply for Income Tax Credit
Workers who earn a low to moderate income may qualify for an income tax credit with a minimum of at least $1 earned. Depending on your circumstances, you could be eligible for a tax refund of up to $7,430 for the tax year.
The amount you’ll qualify for will depend on your income and family size.
Make Energy-Efficient Upgrades
This method may seem surprising, but it works thanks to the Inflation Reduction Act of 2022, which offers federal tax credits for energy-efficient upgrades on businesses and homes.
So, by making energy-efficient switches, like choosing solar power, you can claim up to $3,200 annually in credits.
Rent Out Your Home for Business Meetings
This method is certainly unconventional but is legal. U.S. News reported that Augusta Rule allows homeowners to rent space within their homes for up to 14 days without reporting this income to the IRS.
The only catch is that the home cannot be the owner’s primary place of business.
Use Flexible Spending Accounts
Flexible spending accounts are savings accounts that employers can create for their employees. These savings accounts come with specific tax advantages and are not subject to income or payroll taxes because they’re deducted from your earnings.
This savings plan differs from others as this money has to be used within one year.
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