There isn’t much you can do to avoid taxes altogether. But you can take advantage of a number of strategies to pay less tax. Tax-deferred and tax-free investments, year-end tax planning, and taking full advantage of the tax laws all save you money on April 15th.
| Tax Advantages | |
|---|---|
| Tax-Free | Tax-Free means that no tax is due. |
| Tax-Deferred | Tax-Deferred means you don’t owe tax on your earnings now, usually because you don’t have the use of the money. |
| Home Equity Loans | Since interest on many home equity loans is deductible, while interest on consumer loans and credit cards is not, it may pay to use your home equity credit if you need to borrow money. |
| Roth IRA | Contributions to a Roth IRA are made on an after-tax basis. You can withdraw your contributions at any time and any potential earnings can be withdrawn tax-free1 in retirement. Helps lower your taxes in retirement and increase your retirement savings. |
| Paying Expenses with Pre-Tax Dollars | Many employers offer flexible spending plans that let you exclude a fixed dollar amount from your salary to pay certain medical and dependent care expenses. Since the money is not included in your salary for tax purposes, you pay less tax. |
| Giving to Charity | If you itemize on your tax return, you can deduct charitable contributions, both cash and non-cash. |
Some of these strategies may not be ones that you can implement. Consult your tax professional to determine if other tax-saving options are available to you.
1. A qualified distribution from a Roth IRA is tax-free and penalty-free, provided the 5-year aging requirement has been satisfied and one of the following conditions is met: age 59½ or older, disability, qualified first-time home purchase, or death.