Reduce Your Taxable Income The Smart Way!

By Author: DANNY BREEDLOVE
Total Articles: 11
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Taxable income is the one based on which one's payable income tax is calculated. It can be characterized as gross income along with any deductions which are allowed in that tax year. In a nutshell, you pay some part of your income to the government as income tax. I know, I know, paying a chunk of your salary to the government just seems absurd. Not paying the income tax off your hard-earned money is a very selfish yet justified thought(wink). Well, as appealing as it sounds, it's not possible to 'not' pay the taxes. None the less, there are ways in which you can reduce your taxes by reducing your taxable income!

Here's a list of 5 smart ways to reduce your taxable income!

1) Go for the 401(k) plan: You should always make it a point to have a word with your employer to get maximum tax reduction. The 401(k) plan was rightly intended for all the tax payers to save some money for retirement and reduce the taxable income on the go. Under the plan, the employer is expected to grant retirement allowances to its employees and this money is deducted from the income before the tax calculation is done. So, it is effectively ...
... reducing your taxable income and you also have savings for the retirement plan!

2) Fund your Individual Retirement Account: lf your employer does not offer the 401(k) plan or it does and you still have some extra cash lying around, you can go ahead and deposit that in an Individual Retirement Account. Financial Advisers have always suggested this to be one of the best methods to reduce your taxable income. The money which is deposited in an IRA is a pre-tax contribution and you can contribute up to $5500 to your IRA.

3) Use a Health Savings Account: To reduce your taxable income, you can use a Health Savings Account. By using a Health Savings Account, you can deposit some part of your income as specified medical costs. This is a much better choice if your health insurance is expensive.

4) Save by working from home: You can claim to have a home office which is used to have meetings with clients and contractors and your employer does not have an actual office. This specified work place should not be used for any other purpose. Any job related travel expense can also tax-deferred.

5) Get Higher Degrees by paying from your employer’s pocket: Whenever there's a need for you to take a higher educational degree during your job, make sure you have your employer pay for it. You will reduce your in-hand income by doing this which will eventually reduce your taxable income. Hell of a smart ways to reduce your taxes, eh?