Taxes are the one thing that is collectively avoided by the people around the world. If there is anything that unites us humans then it is the agony of paying taxes! People always run away from paying taxes. Taxes are perceived as an unnecessary expenditure. The collective belief of citizens across the globe is that taxes are a just a way to fleece the innocent population of a country. The notion that it is not put to correct use drives people away from paying them.
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But there is definitely a way to reduce the amount of tax that you pay to the government every other year. There are a lot of clever people out there who have unearthed tricks to fool the income tax department. In fact there are legal ways to cut your taxes. At times government also releases schemes to reduce tax payments. Keep an eye out for them and try to fill your tax payments in that time window only.
Apart from them, given below are some usual tactics used to reduce tax. Check them out before filing for your tax payment.
- Reduce taxable income
What is taxable income in the first place? The gross income of an individual minus any deductions or exemptions comes under taxable income. “Deductions” and “exemptions”, these two new words have cropped up in the last sentence. By trying to understand its meaning it seems as if there are some deductions, i.e., subtractions in taxes are possible to make. Yes it is possible. Deductions and exemptions both reduce the amount of taxable income.
What is tax? It is some percentage of your income that goes to the government so that it is able to build amenities for you. In other words you pay tax for the amount of income that you generate. So, in order to reduce the tax you need to reduce your “taxable income”. It does not mean that you start earning less. You just have to report less when you file for your tax payment.
- Contribute to retirement plans
In the US, if your age is above 50 then to reduce your taxable income you can start contributing to an employer sponsored retirement plan because these contributions are not included in the taxable income.
Money given away for social causes like charity or donation does not count in taxable income. Start donating. Become a philanthropist. Remember; do not forget to take receipts of your donations because all these proofs will be required when you start filing for your income tax in the year end.
- Take advantage of tax credits
The amount the money that a tax payer is able to deduct from his/her tax is known as tax credit. Not to be confused with tax deductions and exemptions which help in reducing the taxable income. Tax credits on the other hand reduce the amount of tax owed. Tax credits may be granted to a particular individuals, businesses or industries in a specific location. The nature of the credit determines the amount of tax credit. At times the government may give tax credit to develop a particular habit in the country, to help disadvantaged taxpayers.
There are many other methods, both legal and illegal, too to reduce tax payments. Just be careful to keep records of all the deduction, credits you apply for.