There is nothing more frustrating than to work hard all year, pay what you think is your fair share of income tax and then turn around on April 15th and get slapped with MORE tax because you did not pay attention or find a way to pay less taxes throughout the year. Just once, wouldn’t you like to know how to pay less taxes and maybe, just maybe, get a refund for once? Well, good news, there are several tips I will show you how to pay less taxes every year.
Buy a house. This is considered the number one way to pay less taxes by using the mortgage interest tax deduction. If you currently rent, consider asking your landlord if you can buy the house you live in now. Why let your landlord get all the tax deductions?
Get a 401k. Put a percentage of your paycheck into your 401k every payday. This reduces your taxable income so you pay less taxes. Note, however, you cannot withdraw it before age 59 1/2 without paying a penalty. Many employers match your contributions so the combination of reducing your taxable income and the matching funds practically PAYS you to save. Do the calculations, sometimes you are effectively paying yourself what you would have paid the IRS if you had not contributed.
Convert your credit card debt. You cannot deduct credit card interest but CAN deduct mortgage interest. If you have a lot of credit cards to pay, consider the possibility of making that debt secured debt. If you own a home and have equity, you may be able to refinance your home or secure a second mortgage to pay off those credit cards. Be careful, however, and ensure first that you can afford to pay the mortgage(s) or else you can lose your home. This swapping of debt actually HELPS your credit score because you are swapping unsecured debt for secured debt so it has a double benefit.
Start a hobby to make money. This should actually say, START A BUSINESS. If you truly want to learn how to pay less tax, then this is the key to your success and the easiest and cheapest to implement. You cannot run your business like a hobby, however, or you risk losing all your tax deductions/business expenses. But if you learn how to turn that hobby into a tax deduction goldmine, that is the formula on how to pay less taxes.