How to Avoid a High Tax Bill Next Year

Taxes are one of the few constants in life, always creeping around the corner. The thing is taxes are less about figuring how much you owe and more about figuring out how much the government owes you. There are thousands of pages of tax code, and almost all of it is about how you can avoid paying taxes in different circumstances. It is your choice if you don’t want to use these methods written into the tax code, but it could save you a lot of money. Here are a few ways you can avoid a high tax bill next year.

Change Your Withholding

The first way that you can avoid a high tax bill next year is to change your withholdings. If you find that you are owing taxes year after year, the problem may be that you just aren’t withholding enough of your income for taxes. Yes, increasing your withholdings will not necessarily decrease the amount you spend in taxes, but it can certainly decrease the sting in April when you owe the IRS. Wouldn’t it be much better to receive a big refund than owe more money at the end of the year?

Save for Retirement

Another great way that you can avoid a high tax bill next year is to save for your retirement. When you put your money into a retirement investment account like a 401(k) or IRA, you are able to deduct your contributions from your taxable income to pay taxes on the money when you take out distributions during retirement. This can be a great strategy if you expect to be in a lower tax bracket during retirement. You can save $6,000 in an IRA or an extra $1,000 if you’re over 50. Retirement savings are necessary and help lower your taxes.

Maximize Your Deductions

The final tip that will help you to avoid a high tax bill next year is to maximize your deductions on your taxes. There are many deductions that you can take on your taxes that will give you a bigger return than simply taking the standardized deductions. This is especially true if you are a freelancer or are self-employed, as you can deduct many business expenses from your taxable income.

Nobody likes paying taxes, but if you know how to use the tax code to your advantage, you don’t have to pay as much. Do these three things and you can bet on a lower tax bill next year.

Check out this article on what to do with inherited assets!

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