Your taxable income is what determines how much, if any, you will owe on your tax return. There are some ways to lower that income.
According to federal law, people must pay a percentage of their income toward their tax bill. This is their taxable income.
What you end up paying is determined by your income. Those with a larger income will have a higher tax rate.
The greater your income is the more you’ll end up paying in taxes. According to Marca, those with an income over $539,901 will be subjected to a tax rate of 37%.
Anyone making $10,275 or less only needs to pay 10% of their earnings.
Despite these rules, there are ways you can reduce your taxable income without actually lowering your overall income.
How to lower your taxable income so you can pay less on your tax return
First, you can enroll in an employee stock purchasing program. This program lets employees buy stock in the company they work for using money after taxes from their salary. The company must participate in a program like this for employees to do this.
By purchasing stocks this wat, there is usually a discount. As long as the employee holds onto the stock for over a year then they will see a lower capital gains tax rate.
Another way to lower your taxable income is by contributing to a 401k or IRA. The money you invest is before taxes are taken out and will be taken off your overall income for the tax year.
A HSA or health savings account works similarly. You can invest funds from your salary with pre-tax dollars for any future health needs. The maximum limit for a single person to invest is $3,650 and a family has a limit of $7,300.
You may deduct the money you’ve spent on interest toward your student loans.
Finally, you can lower your yearly income by offloading stocks you have that aren’t doing well and you’ve lost money on. The loss will offset your yearly income.
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Samantha edits our personal finance and consumer news section. Have a question or lead? Send it to [email protected].