8 Best Tips to Reduce Your Taxable Income

Every business wants to save money so that they can invest it to grow their operations. There are numerous ways of doing so, like investments and reducing your taxable income. So, if you are looking at reducing your tax liability, this article will give you 8 tips on how to do it. Additionally, you can also look for small business accounting services in Naples, FL, who can help you with the same.

Tips on Reducing Taxable Income

• Municipal Bonds

One of the best ways to lower your taxable income is to invest in municipal bonds. When a business buys municipal bonds from the government, they are lending money to them. Hence, when the bonds mature, and the amount is repaid to the buyer, the interest on them is tax-exempted.

• Contribute to Charity

The IRS has special provisions for businesses that contribute towards charity. You can get a tax deduction and save on your taxable income by contributing a certain amount. The amount may differ each year, and hence, if you hire an accountant, they will help you with the process.

• Retirement Account

Opening a retirement account and transferring your money over is a great way of saving money and qualifying for tax deductions. The IRS allows a certain amount to be transferred to the 401K account to get tax deductions.

• Health Savings Account

Employers frequently provide a high-deductible health plan to their staff. If you are on one, you will have access to contribute towards your health savings account. By investing, you will have a tax-free payroll deduction, growth, and withdrawals for medical expenses.

• Personal Allowance

Each individual is allowed to have some personal allowance where any income that is earned is tax-free. You can show pension, rental, or offshore bond income in this category. 

• Restructure Business Entity

Most businesses are not aware that how you operate also impacts the tax you pay. For instance, a C-corp registered company will have lower tax liability compared to a sole proprietor or LLC.

• 529 Plan

The IRS also offers tax deductions if you set aside money for your child’s higher education. You can contribute to the 529 plan, which is operated either by the state or the educational institute.

• Hire an Accountant

Hiring an accountant will help you get expert advice on how and where to invest smartly to reduce your taxable income. They will know the rules and the amount that can be invested to save taxable income.

Conclusion

You can end up paying a lot of taxes if you are not aware of where and how much to invest. Hence, you can keep this article as a reference for reducing your taxable income smartly.