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<span>Your Guide to Reducing Your Tax Liability</span>

Your Guide to Reducing Your Tax Liability

While you have to meet your legal obligations, there’s no benefit to paying extra in taxes. Any amount you don’t have to pay to the IRS means more money you can put toward saving and investing for your future. Our financial advisors are here to help you reduce your tax burden by employing various tax saving strategies. 

Utilizing a mixture of tax-free investments, tax-deferred accounts, and various deductions and credits, we’ll create a plan for you. Even when it’s not possible to offset your current year’s tax liability, there is sometimes an option for deferred tax liability. For example, you can defer capital gains losses to future years if you reach the maximum allowable offset for the current tax year.

How Do You Reduce Your Tax Liability?

Our financial advisors are experts in offsetting your tax liability. Depending on your financial situation, we’ll identify the strategies that make the most sense for you. If you’re a business owner, you have even more options for reducing your tax liability. Here are some examples:

  • Employee Retention Credit: This refundable payroll tax credit provided some relief during pandemic times, allowing employers to receive a credit for retaining employees. This credit is no longer active, but you can still claim it by filing an adjusted return for 2020 or 2021. 

  • Research and Development Credits: Businesses in a variety of industries may qualify for the Research and Development Tax Credit. You must meet a four-part test for qualified research activities, which includes being technological, experimental, having a permitted purpose, and eliminating uncertainties. 

  • Earn Tax Free Income: One way to reduce your tax liability is to earn tax free income. We can do this using tax-deferred investment accounts or investments like municipal bonds.

  • Maximize Deductions & Tax Credits: The IRS allows you to deduct contributions to a qualified retirement account. We can also help you identify other deductions and credits you can use to reduce your taxable income and your tax liability. 

  • Contribute to a Retirement Account: A great way to reduce your tax liability and save for the future is to use tax-deferred retirement accounts. We recommend contributing to employer-sponsored retirement plans, such as 401(k)s and 403(b)s, and individual retirement accounts. 

  • Open a Health Savings Account: You can use a health savings account, or HSA, with a qualified, high-deductible health insurance plan. An HSA allows you to pay for medical expenses with tax-free income.

  • Profit from Investment Losses: Sometimes an investment loss can turn into a tax advantage. You can deduct capital gains losses to reduce your capital gains and even carry forward any excess loss to future tax years.

  • Check for Flexible Spending Accounts at Work: Some employers offer flexible spending accounts, or FSA, allowing you to contribute pre-tax income to pay for medical and dental expenses. 

  • Claim Business Deductions: Your business may qualify for different business deductions, allowing you to reduce your taxable income by deducting qualified business expenses. This also includes depreciation of certain assets, which doesn’t show up on your expense report.

  • Claim Home Office Deductions: If you use part of your home for business, you may claim the home office deduction to further reduce your taxable income. You can deduct a percentage of your mortgage or rent and utilities for the use of your home office space.

  • Donate to Charity: Donations to qualified charities can be deductible expenses for a C Corporation. For small-business owners and individuals, you must itemize your deductions to include charitable donations.

There are several ways to reduce your tax liability if you know how to take advantage of the tax laws. Our financial experts specialize in reducing your tax liability using tax advantaged investments. 

FAQs about Reducing Taxes

What Does Reducing Your Tax Liability Mean?

Reducing your tax liability means taking advantage of deductions and credits to reduce your taxable income and tax liability. When you reduce your tax liability, you pay less to the IRS and keep more for yourself.

Why Is It Important to Reduce Your Tax Liability?

The more money you can keep for yourself, the more money you can save and invest for your financial future. There is no benefit to paying more to the IRS than you’re legally required to.

How Can You Legally Reduce or Defer Your Tax Liability?

We can help you find which tax strategies will reduce your tax liability. These could include using a deferred tax liability by reducing taxable gains or using tax-deferred retirement accounts.

We’ll Create a Strategy to Reduce Your Taxes

Let us help you reduce your tax liability by creating a comprehensive plan that fits your financial situation and objectives. Reach out to our team at the Dannah Investment Group to get started.

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