Strategies for Minimizing Tax Liability
As the old saying suggests, only two things are certain in an individual’s life: death and tax. While little can be done to alter the former, scores of legal strategies can be employed to reduce a person’s tax burden significantly. Unlike the popular belief, having an effective tax reduction plan in place is something that is not only reserved for the rich or those who want to manipulate the United States tax code. Instead, it is rather a strategy that can be leveraged by any interested taxpayer who is willing to follow a simple set of rules.
Setting up a retirement account presents one effective strategy. Firstly, by making timely contributions to this account, the taxpayer achieves a long-term financial benefit. Secondly, the contributions provide an outstanding tax reduction tool. These reductions are primarily because the amount paid into the account from the individual’s taxable income is deductible, hence reduces the gross taxable income. However, these are not the only proffered benefits. Retirement accounts contributors can also claim a “retirement saver’s credit” calculated by the IRS.
Another way of reducing tax liability for the year involves employing a strategy commonly referred to as “tax-loss harvesting.” This tax reduction strategy involves disposing of assets or investments whose market value has since depreciated. The asset losses can be written off against an individual’s assets gains or any other income up to a specified limit every yearly (at the moment the $3000). Moreover, any amount that cannot be used in a given year can be carried forward and used in the future, thereby reducing that year’s taxes.