"How can I lower my tax bill legally?"
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Strategies to Legally Lower Your Tax Bill
To lower your tax bill legally, there are several strategies worth considering depending on your unique personal and financial circumstances. Here are some options:
1. Take advantage of tax deductions and credits:
The US tax system provides many legitimate deductions and credits that can help reduce your taxable income. For example, you can claim deductions for charitable donations, home mortgage interest, property taxes, and certain medical expenses. You can also take advantage of tax credits for dependents, education expenses, energy-efficient home improvements, and more.
2. Maximize retirement savings:
Contributing to a 401(k) plan or traditional IRA can reduce your taxable income and lower your tax bill. You can contribute up to $19,500 to a 401(k) plan in 2020, or up to $26,000 if you're 50 or older. For traditional IRAs, the contribution limit is $6,000 or $7,000 if you're 50 or older.
3. Utilize tax-deferred investment accounts:
If you hold investments that generate taxable income, consider holding them in a tax-deferred account such as an individual retirement account (IRA) or a 401(k). This strategy can help you reduce your taxable income and lower your overall tax bill.
4. Plan charitable donations effectively:
If you plan to make charitable donations, consider donating appreciated assets such as stocks or real estate rather than cash. This strategy can provide tax benefits such as avoiding capital gains taxes and receiving a tax deduction for the fair market value of the assets donated.
5. Consider tax-loss harvesting:
If you have investments that have lost value during the year, consider selling them to offset capital gains taxes on gains from other investments. This strategy is called tax-loss harvesting and can help you reduce your taxable income and lower your overall tax bill.
It's important to note that there may be limitations and exceptions to these strategies depending on your unique situation, and tax laws may change over time. Consulting with a licensed tax professional can help you identify the best strategies to legally reduce your tax bill based on your specific circumstances.
