If you’re like most people, you want to save as much money as humanly possible in taxes. After all, the more you save, the more you can put towards your family, your business, a new house, maybe a new car, paying off debt—you name it. But saving money in taxes requires specific knowledge that not everyone comes across in their day-to-day life. In this article we will teach you How to Avoid Taxes Legally in the US.
Because my goal is to always help you guys save as much as possible in taxes, I’m going to break down some of the absolute best strategies, the best tricks, and loopholes that you can use to legally save a fortune on your taxes.
1. Health Savings Accounts (HSAs)
HSAs stand for Health Savings Accounts. An HSA is a savings account for people with high deductible health plans that they can put money into on a pre-tax basis to use for qualified medical expenses later. HSAs help you save money in taxes because when you put money into them, it lowers your pre-tax income. When you spend the money on qualified medical expenses, you still do not have to pay taxes on it and you can also take free health care services. The benefits of HSAs go even further—you can invest the money in your HSA, and the earnings from the investments are completely tax-free. HSAs help you save money in taxes in multiple ways, making them incredibly amazing.
2. Commuter Benefits
Commuter benefits are specific tax benefits that the IRS allows you to take advantage of related to your commute to work. For 2023, you’re allowed to spend up to $300 per month tax-free on commuting expenses. This translates to a tax deduction of around $3,600 for the year, which is quite significant. Many people do not take advantage of commuter benefits because they simply don’t know about them. The $300 that the IRS lets you spend tax-free per month on commuting applies to a wide variety of commuting expenses, including buses, trains, Ubers, lifts, subways, parking garages, and parking meters. Contributions are transferred from your paycheck to your commuter benefits account with pre-tax dollars, reducing your pre-tax income and saving you money in taxes along with that you have to know how to save money fast on a low income.
3. Flexible Spending Accounts (FSAs)
FSAs, or Flexible Spending Accounts, allow you to pay for certain qualifying medical expenses, such as deductibles, co-pays, prescriptions, medication, crutches, bandages, and devices for your blood sugar, with pre-tax money. FSAs help you save money in taxes by reducing your overall taxable income. Keep in mind that there is an annual contribution limit for FSAs, which is $3,050. Also, leftover money in your FSA at the end of the year does not automatically roll over to the next year; you will need to check with your employer regarding rollover rules.
4. Dependent Care FSAs (DC FSAs)
A Dependent Care FSA is similar to a regular FSA, but instead of using it for medical expenses, you can use it to pay for qualifying child or adult dependent care expenses with pre-tax money. Expenses can include preschool, nurseries, daycare, babysitters, nannies, assisted living, and more. This is another way to reduce your tax bill with money you are already going to spend, turning it into a tax deduction.
5. Retirement Plans
There are various retirement plans with tax advantages, such as the traditional 401(k) and the 403(b). These employer-sponsored retirement plans are tax-deferred, allowing you to contribute with pre-tax dollars, lowering your taxable income each year. Taxes on the account are deferred until you withdraw during your retirement. Check with your employer to see which retirement plan is offered and choose the one that best suits you.
6. Long-Term Capital Gains
Capital gains taxes are owed when you sell an asset for more money than you paid for it. Long-term capital gains taxes are usually 15% or 20%, and they can even be as low as 0% depending on your income. By holding on to your assets for longer than a year before selling them, you can potentially save money by paying long-term capital gains taxes instead of short-term capital gains taxes.
7. Gambling Losses
Surprisingly, gambling losses are deductible on your tax return. If you have a wild night at the casino and incur losses, you might be able to write off those losses. Nevertheless, your deductible losses are limited to the sum of your winnings. Keeping receipts, tickets, and statements from the establishment where you gambled can help prove your deductions in case of an audit.
8. 529 Plans
A 529 plan is designated to help families save for education expenses. Earnings in the plan accumulate tax-deferred, and qualified distributions for education expenses are completely tax-free. In over 30 states, contributions to 529 plans are eligible for a state income tax deduction or tax credit, providing additional tax benefits for education savings. Pursuing education can be expensive, but there are ways to ease the burden. One option is to explore financial solutions like a “$100 loan no credit check.” These loans can provide immediate relief for educational expenses.
9. Capital Losses
Capital losses occur when capital assets decrease in value and are sold at a price lower than the purchase price. The IRS allows you to deduct capital losses, providing deductions for assets like stocks, cryptocurrency, or real estate investments. Keeping track of these losses can help offset gains and reduce your tax liability.
10. The Augusta Rule
The Augusta Rule is a tax loophole that allows you to rent out your home for up to 14 days tax-free. This means you can potentially earn thousands or tens of thousands of dollars without paying taxes on it. This rule is applicable nationwide and can be a valuable way to generate tax-free income.
The tax strategies discussed in this article can potentially save you a significant amount of money in taxes. Even if you don’t implement all of them, using just a few can result in thousands, if not tens of thousands of dollars in tax savings. If you have any questions about these tax-saving technique feel free to ask your question in comments below.
Frequently Asked Questions (FAQs)
Are these tax-saving strategies legal?
Yes, all the tax-saving strategies discussed in the article are legal and approved by the IRS. They take advantage of various tax laws and provisions to help you reduce your tax liability.
How can I determine which tax-saving strategies are best for me?
The best tax-saving strategies for you depend on your individual financial situation and goals. It’s advisable to consult with a tax professional or financial advisor who can assess your specific circumstances and recommend the most suitable strategies.
Can I use multiple tax-saving strategies simultaneously?
Yes, you can often use multiple tax-saving strategies simultaneously to maximize your savings. For example, you can contribute to an HSA, take advantage of commuter benefits, and invest in a 529 plan all in the same year to reduce your overall tax liability.
Do I need to keep records of my expenses for these tax deductions?
Yes, it’s essential to maintain detailed records of your expenses related to tax deductions. This includes receipts, statements, and other relevant documents. Keeping accurate records is crucial in case of an audit to prove the legitimacy of your deductions.
What is the deadline for implementing these tax-saving strategies?
The deadlines for implementing these strategies can vary. For example, contributions to retirement accounts like a 401(k) typically have a year-end deadline, while other strategies, like the Augusta Rule, may not have specific deadlines but should be used when applicable. It’s advisable to plan ahead and consult with a tax professional to ensure you meet all necessary deadlines.