Some people have to pay taxes on their income. Although the nominal tax paid by each person will be different, you need to know that several things can reduce your tax bill. Each individual has a different taxable income, but you can lower the cost of taxes you have to pay.
Each country has its provisions regarding income tax that must be paid by a person. Usually the greater a person’s income, the greater the income tax that must be paid.
Taxes are hard to avoid, but there are strategies you can follow to lower your tax bill.
Tips for Reducing Tax Bills
When you earn income, you also have to pay taxes monthly or annually. The amount of tax paid sometimes makes your income decrease quite a lot. Here are some strategies you can use to reduce your tax bill:
- Create a Retirement and Benefits Account
Placing funds in a retirement account can be an effective way to reduce the value of taxes. why? Because the government will not collect taxes on the income you save in your retirement account.
Funds that go into retirement accounts will not be subject to income tax. Because the taxes you pay must be withdrawn from the account when the pension fund is withdrawn.
This strategy is widely used by company owners to reduce employee tax costs and corporate taxes. This is quite beneficial for employees.
But every company’s policy is different, but setting up a retirement fund account is the easiest way to reduce income tax rates.
Setting up a retirement fund is one easy-to-follow way to reduce tax costs. In addition, the company also offers other benefits in the form of compensation.
This compensation allows employees to reduce the amount of tax that must be paid. Allowances provided include educational allowances, transportation, meals, and so on.
Since it’s considered compensation, you don’t have to pay a lot of taxes for this.
- Take a Tax Credit
Currently, there are many types of tax credits available, some of which even provide more benefits for you. This tax credit can help you reduce the amount of tax you have to pay.
So this tax credit not only reduces income tax but also other taxes that must be paid. This tax credit will reduce the amount of tax that must be paid.
Say you have $40,000 in taxable income and $10,000 in taxes to pay. Then the income you receive is only $ 30,000. Here it is quite obvious that taxes can reduce your income quite a lot.
With a tax credit, you can reduce the cost of taxes that should be paid. So that there are not too many deductions on your income.
There are several types of tax credits that you should know about, such as child tax credits, parenting or dependent tax credits, income tax credits, and so on. Tax credits are generally used by the public because they can reduce the value of taxes, so they still get quite a lot of income.
- Making Charitable Contributions
To reduce taxes, you can contribute to charity. This method is widely used by the public to reduce the value of taxes to be paid. A charitable contribution means that you must voluntarily donate goods, cash, stock, and other items to a charitable organization.
Your donations are not individually taxable you can claim a tax deduction as some of the funds go to charitable organizations. Governments do not usually collect taxes from charitable organizations to provide benefits.
As a giver, you will receive no material benefit from this donation. So the government will not collect income tax on the total contribution you make. This can reduce and even make you avoid tax costs.
- Record Business Operational Expenses
When someone builds a business, there is a self-employment income tax that must be paid. This value is certainly different from the income tax that must be paid by employees. Even the taxes of an entrepreneur can be higher.
But you can suppress and even reduce the value of these taxes in various ways. Typically, a business owner will deduct taxes from operating expenses such as office rent, business vehicle maintenance costs, and inventory and headquarters expenses.
It can be concluded that the lower the net profit, the less tax must be paid. From this strategy, you can reduce your taxes by increasing bills or company operating costs.
- Setting up a Children’s Education Fund
An education fund can reduce your taxes. How to? Education funds are usually set up by individuals or companies as employee benefits.
You can choose to create this account yourself or the company that created it. This is regulated in the law on tax sharing. Where education funds cannot be subject to income tax.
This is why many companies offer children’s education funds that are deducted from your monthly income. Because your income is getting smaller, the tax value is also lower. This principle is what you can use to reduce taxes and choose to include education funds for your children.
Those are 5 tips to reduce the taxes you have to pay. The above method is effective enough to reduce the value of your taxes.
Some of the tips above are also widely used by employees to prevent too much tax. Especially for pension funds and children’s education, many people choose to allocate their salary to a pension account or children’s education fund.