We're all looking for ways to lower our tax bills. Following are some very simple ideas on how to reduce income taxes this year, and for many years to come. It's important that all families take a look at these tips and see which ones can help you reduce your tax bill.
Fund your retirement - Of course, we all need to save for retirement. But, did you know that saving for retirement is a great tip when you're wondering how to reduce income taxes? By saving for retirement, you're reducing your adjusted gross income by the amount you save, thereby reducing the income you have to pay taxes on.
Sell stocks that aren't doing well - Look at your portfolio and determine the stocks that are worth far less than when you bought them - and then sell them. Losses on stocks are tax deductions. If you sell them for more than you paid, then you'll have to pay capital gains taxes. When you're trying to figure out how to reduce income taxes, don't forget to look at those stocks that have lost money for you.
Get a mortgage - If you don't own a home, you're missing one of the biggest tax savings opportunities, and it's no wonder you're asking how to reduce income taxes! The interest you pay on your mortgage is tax deductible, and in the first few years of a mortgage, most of your house payments go to interest, so you can save a bundle.
Get a second mortgage! -If you have other debts, like a car loan or credit cards and you're wondering how to reduce income taxes, consider taking out a home equity loan and using the money to pay off your other debts. Like your primary mortgage, the interest you pay on your home equity loan is tax deductible, but the interest on your credit cards and car loans is not.
Deduct Your Child's Tuition - If you're paying college tuition you can deduct this from your taxes, too. Of course, the tuition must be coming out of your pocket, not from a tax free savings account for college like a 529 plan. If you don't have a child in college, consider taking a few classes yourself, as your tuition is deductible too!
Make your home more energy efficient - When you require new appliances for your home, such as a hot water heater, be sure to look for appliances that carry the government's energy star rating. Items purchased with the energy star rating are eligible for tax deductions. In addition, when you replace your old appliances with energy efficient ones, you'll save money every month on your utility bills.