In the United States, individual income tax is collected by the Internal Revenue Service in a progressive rate schedule. If you are wondering about deductions, credits or how to lower your taxable income for this year’s taxes, read on and learn what options there are to help keep more of your hard-earned cash with you!

The “how to reduce tax liabilities 2021” is a blog post that discusses 9 ways to lower your tax bill.

9 ways to lower your tax bill

Taxes are inconvenient, and many individuals would like to pay as little as possible in taxes.

While it’s unlikely that you’ll be able to completely avoid paying taxes, there are methods to take advantage of the tax system and a few basic measures you can take to reduce your tax obligation.

Many individuals aren’t entirely aware of all the legally authorized deductions (which decrease your taxable income) and tax credits (which directly reduce your tax payment) they may be eligible to since the tax code is complex and the regulations are always changing.

Learn how to reduce your taxable income without getting in trouble with the IRS by reading on.

Related: 32 New Year’s Resolutions to Save Money

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1. Selecting the Appropriate Filing Status

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You have the option of filing jointly or separately if you’re married.

In many circumstances, filing jointly will benefit a married couple. This will usually result in a reduced tax rate for them, as well as eligibility for tax credits such as the earned income credit, the American Opportunity Credit, and the Lifetime Learning Credit for educational costs.

However, in certain cases, it may be preferable for couples to file separately.

When both couples are high-income earners and make the same amount, when one spouse has substantial medical expenditures, and when your income dictates your student loan payments are just a few instances.

Using both methods to prepare returns might help you weigh the benefits and drawbacks of filing jointly or individually.

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2. Increasing the Size of Your Retirement Account

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Taxes are often lower the smaller your income. You do not, however, have to make less money to minimize your tax burden.

Instead, make contributions to a 401(k) retirement plan, a 403(b) retirement plan, a 457 plan, or an IRA to lower your gross income (income before taxes are deducted).

The more money you put into a pre-tax retirement plan, the lower your adjusted gross income (AGI), which is used to calculate your taxable income. It’s crucial to remember, however, that depending on your income and age, there are yearly limits to how much you may put away for retirement.

Even if your employer does not provide a retirement plan, you may be able to create and contribute to an IRA. This is something you can do even after the year is over.

While the tax year ended on Dec. 31, you may still be able to contribute to your IRA or create a Roth IRA until mid-April provided you fulfill the qualifying conditions.

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3. Calculating Your Health-Care Expenses

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Generally, health-care costs are only deductible until they surpass 7.5 percent of your adjusted gross income (AGI) (and only for those who itemize their deductions). However, with today’s high cost of medical treatment and, in certain circumstances, insurance companies passing on additional expenses to customers, you may be shocked at how much you spend on health care.

Aside from the obvious costs, such as copays and coinsurance, it’s also important to include in dental care, prescription drugs, prescription eyeglasses, and even mileage to and from all medical visits.

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4. College and Private School Savings

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If you have children who may attend college in the future or who now attend or will attend private school, establishing a 529 savings plan may be beneficial.

It’s never too early to start saving for your children’s education, even if they’re little. Indeed, because of the long-term compounding potential of investment, beginning early might help make education much more accessible.

A 529 savings plan is a sort of investment account meant to assist parents in making tax-advantaged investments in private schools or universities. While you won’t normally receive a federal tax deduction for your donations to a 529 plan, several states do.

The primary tax benefit is that you won’t pay taxes on any profits your investments make between now and when you need the money, and any withdrawals you make to pay for eligible school expenditures will be tax-free.

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5. Marking Your Calendar for Estimated Tax Payments

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While this won’t officially cut your taxes, it may help you avoid a larger-than-needed tax payment at the end of the year.

Because income tax in the United States is a pay-as-you-go system, this is the case. If you are a salaried employee, the federal government collects income taxes via payroll taxes throughout the year.

However, if you’re self-employed, you’ll have to pay as you go. This may be accomplished by paying your IRS taxes in quarterly payments over the course of the year.

If you don’t pay enough or miss a quarterly payment deadline, you may be subject to an IRS penalty. The amount of the penalty is determined by how late you paid and how much you underpaid.

Quarterly estimated tax deadlines are usually in the middle of April, mid-July, mid-September, and mid-January.

Individuals may utilize the IRS’s Expected Tax Worksheet to help them calculate their estimated payments.

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6. Keep your donation receipts safe.

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You may be eligible to claim a tax deduction if you donate to IRS-approved charity. So, whether you’re giving cash, clothes and household stuff, or your old automobile, it’s a good idea to always acquire a receipt.

You may have a smaller tax payment if your total charitable donations and other itemized deductions — such as medical expenditures, mortgage interest, and state and local taxes – exceed your available basic deduction.

You may be eligible to deduct up to $300 in cash contributions (and maybe more if you’re married and filing jointly) even if you don’t itemize and instead take the standard deduction. This, however, is owing to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which may not extend beyond 2021.

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7. Investing in Your HSA

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You may be qualified for or already have a health savings account (HSA) if you have a high-deductible health plan.

Because HSA contributions are made using pre-tax cash, any money you put into an HSA is not taxable by the IRS. You may usually contribute money until mid-April and deduct such payments from your previous year’s taxes.

This is crucial to understand since HSA funds may be utilized for more than just medical bills. If you don’t need the money for healthcare, you can simply leave it in your HSA until you retire, at which time you may take money out of an HSA for any purpose.

Some HSAs enable you to invest your money, in which case the interest, dividends, and capital gains are all tax-free.

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Making Student Loan Payments (No. 8)

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Even if you don’t itemize your deductions, you may be able to reduce your tax burden by deducting up to $2,500 in student loan interest paid each year.

However, there are certain income restrictions that must be satisfied. When an individual’s income exceeds specified levels, the deduction is tapered away.

Even so, entering in the figures to check whether you qualify is worthwhile.

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9. Get rid of any investments that aren’t doing well.

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If you have assets in your portfolio that have been declining for a long time and are unlikely to rebound, selling them at a loss might save you money in taxes.

The rationale for this is because you may use your losses to offset capital gains, which are earnings generated when you sell an investment for more than you paid for it. The IRS may tax you heavily if you earned from an investment that you kept for less than a year.

Tax-loss harvesting is a practice that may assist a taxpayer who has gained money from investments avoid a hefty, unexpected tax bill if done during the tax year in which you owe.

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The Remainder

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The key to saving money on taxes is to familiarize yourself with the tax law and ensure that you are taking advantage of all available deductions and credits.

It’s also a good idea to consider tax preparation as a year-round endeavor. If you make tax-friendly financial choices throughout the year, such as saving for retirement, education, and healthcare, you may easily minimize your tax burden and get a substantial return at the end of the year.

More information is available at:

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

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The “how to lower taxable income 2022” is a guide that tells you how to reduce your tax bill. The article also includes 9 ways in which you can do so.

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