Six Ways of Avoiding or Reducing Taxes

Many individuals and businesses prioritize reducing tax liability, and there are several View this strategies for legally avoiding or reducing federal income tax. Whether you are a salaried employee, a business owner, or a freelancer, understanding how to minimize your tax burden is crucial.

While freelancers often have more control over the taxes they pay, such as being able to deduct expenses directly from their tax bill rather than waiting for a refund, these strategies apply to a variety of people. For example, freelancers and remote workers may benefit from foreign tax incentives. Still, salaried employees can also leverage deductions, retirement savings plans, and other tax-advantaged options to reduce their taxable income.

Here are six ways to avoid or reduce paying taxes:

1. Self-employment tax deduction
   Employment Income TaxThere are several ways to reduce tax bills and pay no taxes legally, and one of the easiest ways is to take full advantage of a self-employment tax deduction scheme. In the US, this deduction allows you to deduct a portion of your self-employed income from your taxable profit, provided there are allowable expenses.
2. Business expenses
   canada-businessAs a freelancer, you can deduct various business expenses from your taxable income in a calendar year. These deductions include office supplies, travel expenses, and marketing costs – even if it’s for a home office.

You’ll need to keep records of all your annual spending on deductible business expenses and know which items are tax deductible.

You’ll also need to ensure that you deduct only expenses related to your business, as required by tax law.

3. Contribute to a retirement plan
   how to avoid paying taxes federal taxes brokerage account tax rates internal revenue service adjusted gross income tax free capital gains federal tax capital gain higher education standard deduction tax rates 401 k state taxes marital status long term resident alien lifetime learning credit tax laws There are a few ways you can contribute to a retirement plan as a freelancer, which is also one of the simple ways to legally avoid or underpay taxes. There are two common ways to do this if you’re an American citizen. These are:

Contribute to an IRA (Individual Retirement Account) – With a traditional IRA, you will not have to pay taxes on the money you contribute until you withdraw it in retirement. The age for withdrawal is 72.
Contribute to a Roth IRA – With a Roth IRA, you’ll pay tax on the money you contribute now, but you will not have to pay tax on it when you withdraw it in retirement. The age for withdrawal is 59 and a half.

4. Contribute to an HSA
   One of the best ways for American taxpayers to minimize their retirement savings is to contribute to a Health Savings Account (HSA). An HSA is a tax-advantaged account that can be used to pay for qualifying medical expenses, including insurance premiums.

Contributions to an HSA must be made with pre-taxed income, which means they lower your taxable income. If you use the money in your HSA to pay for qualifying medical expenses, the withdrawals are tax-free.

There are a few things to keep in mind if you’re thinking about contributing to an HSA:

First, you must enroll in a high-deductible health insurance plan (HDHP) to be eligible for an HSA.
Second, there are contribution limits for HSAs. For 2023, the contribution limit for a freelancer with self-only HDHP coverage was $3,850, while the contribution limit for freelancers with family HDHP coverage was $7,750.
And finally, you’ll need to designate a beneficiary for your HSA when you open the account.

5. Donate to charity
   donate to charity internal revenue service social security tax rate qualified dividends married couple end of the year investment income social security and medicare other income tax liability irs data new york times new york income taxes wealth managers federal income tax federal government child tax credit stock options standard deduction 401 k financial institution tax accountant tax loss harvesting rich person corporate tax corporate taxes ira contributions internal revenue code earned income fair share senate committee tax code pay period living expenses capital losses next year personal income tax investment advice charitable contributions after school care more money individual income taxes ordinary income fair market five years flexible spending past performance lower rates total income high income qualified medical expenses hard earned money tax losses less tax selling securities recent years american tax system five year period investing involves risk federal income taxes medical and dental expenses dental expenses flexible spending accounts taxable income means traditional ira contributions fund social security other financial institution reduce your tax burden less than a year sell securities total taxes more tax avoid income early withdrawals pay extra employers offer michael bloomberg reduce your tax given year able to deduct ron wyden fact checked paul kiel propublica found highest income may be able social security tax rate qualified dividends married couple end of the year investment income social security and medicare other income tax liability irs dataOn the question of paying no taxes legally, one of the most popular ways to do so is to donate to charity. By donating to a registered charity or private foundation as a freelancer, you can receive a tax receipt, which you can use to reduce your taxable income.

To ensure that you maximize tax savings when you donate to charity, there are a few things to be mindful of:

Make sure that you are donating to a registered charity. You can verify a charity’s registration via the website of your country’s tax authority. A tax authority would be the Internal Revenue Service irs.gov in the US or gov. uk in the UK.
Keep track of all your donations so you can present your receipts upon request.
Make sure you declare your donations when filing taxes to receive the maximum benefit.
Donating to charity is a great way to lower taxable income and provide financial support for those in need. Although charitable donations don’t generally save you money, many of us appreciate having greater control over where our taxed income – or non-taxed income in this instance – is distributed.

6. Claim Child Tax Credit
   The Child Tax Credit is a refundable tax credit available to tax-paying parents with dependent children under the age of 17. It is worth up to $2,000 per child and can be claimed yearly when filing tax returns.

To qualify for the maximum tax credit, parents must have a gross income of under $200,000 for single parents and $400,000 for cohabiting parents. Each child must have a valid Social Security number. Additionally, the child must reside with the taxpayer for over half of the tax year.