7 Strategies to Slash Your Taxes + Keep More Cash

Taxes are unavoidable, but with careful planning and strategic decisions, you can pay less and keep more of your money. Whether you're a business owner, freelancer, or a salaried employee, implementing smart tax strategies can lead to significant savings. 

Here are seven actionable ways to reduce your taxes legally and effectively.

1. Contributions to Tax-Advantaged Accounts

One of the simplest ways to lower your taxable income is by contributing to tax-advantaged accounts such as:

• 401(k): Using pre-tax dollars to contribute to employer-sponsored retirement plans reduces your taxable income.

• Traditional IRA: Contributions may be tax deductible, depending on your income and whether you have access to a workplace retirement plan.
• Health Savings Accounts (HSAs): If you have a high-deductible health plan (HDHP), an HSA allows you to save pre-tax dollars for medical expenses. Earnings, deductions, and withdrawals for medical expenses are exempt from taxes.

Maximizing your allowed contributions allows you to save for the future while paying less tax now.

2. Tax Credit Advantages

Tax credits directly reduce your taxable income, making them more valuable than deductions. Common tax credits include:

• Earned Income Tax Credit (EITC): Enacted to help low-to-moderate-income workers. The maximum adjusted gross income (AGI) for eligibility is: - $53,057 for married filing jointly with three or more qualifying children. - $49,399 for head of household with three or more qualifying children. - $43,492 for single or married filing separately with three or more qualifying children. The credit amount for no children: Up to $600; for one child: up to $3,995; for two children: up to $6,604; for three or more children: up to $7,430
• Child and Dependent Care Credit: Aimed at helping working parents and caregivers offset the costs of daycare and child care services. It allows a parent to claim a percentage of qualifying expenses up to $3,000 for each child under 13 and for dependents physically or mentally unable to care for themselves.
• Education Credits: The Lifetime Learning Credit allows you to claim a credit of up to $2,000 per tax return for qualified education expenses, with no limit on the number of years you can claim it. 

Ensure you know all the tax credits available to you and your family. Keep documentation ready to prove eligibility.

3. Consider Your Filing Status

Your filing status is one of the items that affects your tax obligation more than anything. The five options are Married, Filing Jointly, Married Filing Separately, Single, Qualifying Widow(er) and Head of Household.

Each status comes with different tax brackets, standard deductions, and credit eligibility. For example, filing as Head of Household often offers better tax rates than filing as a single person. Investigate your filing status yearly to choose the most beneficial status for you and your family.

4. Leverage Deductions Strategically

Tax deductions lower your taxable income, reducing your overall tax liability. To give you the best chance to save:

• Itemize Deductions: If itemized deductions (e.g., charitable donations, mortgage interest, local/state taxes) exceed the standard deduction, itemizing can lead to bigger savings.
• Business Expenses: If you are self-employed or do gig work, deduct expenses like gas, meals where applicable, and office supplies.
• Above-the-line Deductions:  Deductions include student loan interest and contributions to retirement accounts like an IRA.

Keep your records and receipts in good order. If you get audited and need to substantiate your claims, you will have everything you need when you speak to the IRS.

5. Defer Income and Accelerate Expenses

Strategically timing your expenses and income can significantly impact the amount of taxes you pay.

• Defer Income: If possible, delay receiving income until the following tax year to put yourself into a lower tax bracket.
• Accelerate Expenses: Pay deductible expenses early, such as medical bills or property taxes, to claim them in the current year.

This approach works particularly well for individuals or businesses whose income fluctuates significantly yearly.

6. Use Capital Gains and Losses Wisely

When you sell investments and make a profit, in most cases, you are obligated to pay capital gain taxes. Capital gains apply to profits from selling things like stocks or real estate. Here's how to reduce your obligations:

• Hold Investments Long-Term: Long-term capital gains are taxed lower than short-term gains.
• Harvest Losses: Offset capital gains by selling underperforming investments at a loss. These losses can also offset up to $3,000 of ordinary income annually.
• Utilize Tax-Advantaged Accounts: Invest in tax-deferred or tax-free accounts, such as Roth IRAs or 529 college savings plans, to avoid paying taxes on gains.

Always consult a financial advisor before selling investments to ensure your strategy aligns with your long-term financial goals.

7.  Hire a Tax Relief Professional

Dealing with back taxes can be stressful, confusing, and even intimidating. A tax relief professional who specializes in resolving tax debt will aggressively advocate for you to achieve the best possible outcome. Here's how they can help:

• Negotiate with the IRS: Tax relief professionals have experience dealing with the IRS regularly and know how to negotiate favorable payment plans, settlements, or even reductions in the total amount owed.
• Protect Your Rights: They ensure you're treated fairly and shield you from aggressive collection tactics like wage garnishments, liens, and levies.
• Create a Customized Plan: Every tax situation is unique. A tax relief professional can analyze your circumstances and design a plan that aligns with your financial situation and goals.
• Save You Money: Their expertise often results in lower penalties, reduced interest rates, or other savings that can far outweigh the cost of their services.

When you owe back taxes, hiring a tax relief professional is an investment in your financial peace of mind. With their knowledge and tenacity, they will fight tirelessly to protect your assets and resolve your tax issues efficiently.

Get Your Free Tax Relief Consultation

Bonus Tips to Reduce Your Tax Burden

Stay Organized Year-Round

Keep your records of receipts, income, expenses, and charitable donations in good order. Use apps or software like QuickBooks or Expensify to streamline record-keeping. Being organized ensures you get all the deductions and credits come tax season.

Plan for Estimated Taxes

If you're self-employed or earn income outside a traditional job, you may need to pay quarterly estimated taxes. Calculate these payments carefully to avoid underpayment penalties.

Review Changes in Tax Law

Tax laws change frequently. Stay informed about updates impacting your deductions, credits, or filing requirements. Subscribe to IRS updates or consult a professional annually to stay compliant.

Final Thoughts

Reducing your tax burden is all about planning and strategy. By maximizing deductions and credits, contributing to tax-advantaged accounts, and leveraging professional advice, you can minimize your tax liability legally and efficiently. Start implementing these strategies today to get control and build a stronger financial future.

Need help optimizing your tax strategy? Contact a trusted tax professional like Ovation Tax Group today to ensure you take full advantage of every opportunity to save.

Get Your Free Tax Relief Consultation