5 Ways Small-Business Owners Can Reduce Their Taxable Income

And many financial advisors expect tax rates to rise in the future as they’re near generational lows. If you’re a retiree or on a fixed income, keeping your taxes low is one of the most important strategies for paying the bills. By reducing the amount you owe Uncle Sam, you’ll keep more in your own pocket and be able to spend on the things that are meaningful to you and your family. For taxpayers who need extra tax savings, there’s a nice little tactic that Thompson recommends as a way of itemizing deductions every other year. With various deductions at your fingertips, credits you could claim and simple ways you can minimize your tax liability, it isn’t always easy to know how best to manage your money. For example, if you sell an asset within 12 months of owning it, you’re likely to face a minimum capital gains tax rate of around 37%.

Get Started Filing Your Taxes Today

By regularly reviewing your tax situation, you can adapt to any changes in tax laws. This adaptability is key to maintaining control over your financial future. It sets the stage for achieving your long-term financial goals with confidence. Engaging with a tax advisor can provide insights into strategic tax planning. This helps you make informed decisions that align with your fiscal goals. Capital gains and qualified dividends are vital aspects of investing.

Best Tips to Lower Your Tax Bill from TurboTax Tax Experts

The Internal Revenue Service (IRS) offers plenty of useful tax information to get you started, but this guide will help take the guesswork out of the process. The Marketplace is provided by MYRA Technologies LLC, a wholly owned subsidiary of MYRA. It does not constitute investment advice or any other type of recommendation.

• For example, if you work from home, you may be able to claim the home office deduction.
• Below, we highlight some of the most common tax forms to report income.
• Here are three steps you shouldn’t miss if you want to successfully appeal your property taxes.

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Another way to reduce your taxable income is by contributing to a traditional IRA. The maximum contribution is $7,000 in 2025 ($8,000 if you’re 50 or older). Your deduction is typically limited to a certain percentage of your adjusted gross income (AGI), too. For example, the tax deduction for cash donations is generally limited to 60% of your AGI. If you donate appreciated assets – such as stocks or real estate that have increased in value – the deduction is usually capped at 30% of your AGI.

A health savings account (HSA) can be a great way to reduce your tax obligations. With traditional 401(k)s and IRAs, you contribute pre-tax dollars, meaning the money goes in before income tax is calculated. 7 easy steps to lower your taxes For example, if you make $75,000 and contribute $19,500 to your 401(k), you’ll only pay income tax on $55,500. Luckily, there are perfectly legal ways to reduce your tax burden without crossing any lines with the IRS. Here’s how to legally avoid taxes, from maximizing your retirement accounts to learning how to offset capital gains.

Income and investment interest forms are usually mailed or sent electronically to you by the end of January, so keep an eye out for them. You can also find and download many of these documents yourself through your bank, mortgage provider or payroll company. Too many people dread filing taxes because of all that paperwork and all those rules (and let’s be honest—all the math). But filing your taxes doesn’t have to come with a side order of stress and anxiety. Historically, municipal bonds have also had lower default rates than corporate bonds.

In this guide, we will explore various strategies to lower your taxable income. We’ll look into the power of tax deductions and how to claim them effectively. The rules can get complex, but if you think you’ll earn less than $68,675 in 2025, the earned income tax credit might be worth looking into. Depending on your income, marital status and how many children you have, you might qualify for a tax credit of up to $8,046 for taxes filed in 2026. If you have a high-deductible health care plan, you may be able to lighten your tax load by contributing to a health savings account (HSA), which is a tax-exempt account you can use to pay medical expenses.

There’s also no tax on withdrawals from a health FSA as long as the money is used to pay for qualified medical expenses. If you’re not that keen on operating real estate, it could make sense to invest in publicly traded real estate investment trusts (REITs). REITs can generate quarterly income – no sweat equity required – and they enjoy an extra 20 percent deduction on pass-through income at tax time, too. Investing in real estate can help generate income while providing a significant tax shield for that cash flow. The income produced from real estate can be offset with depreciation, and the asset can be passed down tax-free to heirs, letting them avoid capital gains taxes on the appreciation.

Contribute to a traditional retirement plan

Sometimes, a thorough tally of potential itemized deductions proves more advantageous than simply taking the standard deduction. Tax brackets are a key concept in understanding how taxes are calculated. They determine the rate at which your income is taxed, depending on your income level.

• Here are some of the most popular tax credits available to American taxpayers.
• Medical costs continue to increase, and while you may be healthy now, having some extra money on hand for medical bills could be a lifesaver.
• Ohio, on the other hand, taxes personal income but allows taxpayers to deduct up to $250,000 in business income from sole proprietorships and other pass-through entities.

This includes expenses like rent, utilities, and business use of your vehicle. You may be able to deduct contributions made to a traditional IRA, though how much you can deduct depends on whether you or your spouse is covered by a retirement plan at work and how much you make. This can help you save more for retirement and pay less in taxes overall. Learn how to lower taxable income with seven tips from TurboTax Live tax experts. Find out various strategies to reduce your tax bill, including deductions and credits.

Step 4: Maximize Your Tax Deductions

These tax planning devices are easy to understand and put to use and are most likely to save you (the average taxpayer) money. Here’s a quick look at seven steps you can take to reduce your taxable income and the taxes you’ll owe. Claiming all the deductions and tax credits to which you’re entitled can significantly lower your tax bill. These benefits are either taken out of your paycheck or reimbursed to you by your employer after you pay them. If you are self-employed, you can even deduct health insurance premiums if you meet specific requirements. When combined, these deductions can significantly lower your taxable income.

Take Advantage of the Self-Employment Tax Deduction

However, any donations that exceed an AGI limit for a particular tax year can generally be carried over to up to five future tax years. If you have a lot of money in a taxable brokerage account, you may be able to skip the taxes on a huge chunk of income, if you structure things right. In fact, you can recognize well more than $100,000 in income and pay no taxes on it – by taking advantage of long-term capital gains rates. One of the best ways to cut your taxes is to reduce the amount you’ll need in retirement, keeping you in a lower tax bracket if you do take withdrawals from pre-tax sources such as traditional IRAs. This strategy also has the extra benefit of giving your money more time to compound.

This is when you sell your investments to “realize” a loss (the act of selling at a loss). These losses can be used to offset capital gains taxes, dollar for dollar, reducing your overall tax liability. Making charitable contributions is another great way to reduce your tax bill. Donating cash, toys, household items, appreciated stocks and your volunteer efforts to qualifying charitable organizations can provide big tax savings. According to the IRS, more than 66 million Americans filed their taxes online in 2024.