You want to pay less taxes.
While taxes might be your contribution towards the society you live in, everyone wants to pay less than they do. Fortunately, there are some excellent ways that you can legally reduce the amount of taxes that you owe.
Save for Retirement
Whatever your country's retirement savings plans are called; RRSP (Canada), 401K (USA & Japan), Superannuation (Australia), etc. There are some serious tax breaks for contributing to your retirement.
For Canadians, contributing to your RRSP accounts grants you a tax credit, effectively lowering your taxable income for the year. While your income is lower for tax purposes, you also have the advantage of increased investments to your name. The growth on those investments is only taxed when you withdraw the money, usually on retirement which could be many years from now. This tax-deferral is beneficial to you now, and can be important for tax planning later in life.
The reason that saving for retirement comes with tax advantages stems from the purpose of taxes: to pay for the society that you benefit from.
As you increase your own financial resources, especially in funds such as the RRSP or 401K, you are reducing your reliance on government systems designed to protect you when you retire. A lower reliance on those systems means you bring about a lower societal burden, and your share of contributions can be decreased.
Claim Business Expenses
If you are making money on a side hustle, you may be able to claim some tax credits based on your expenses.
While your side-gig means you earn more, and therefore pay more taxes thanks to the marginal tax rate system, there are some benefits for deducting expenses that you incur. These could include expensing part of your home if you are dedicating a certain area to these side-gig activities.
For example, someone making money on the side selling hand-sewn clothes and other products. They would be able to expense materials and sewing equipment, the sewing room in your home, and other costs incurred from those business activities. It’s very important if considering these types of deductions that you’ve kept the receipts and proof of expenses.
Deduct Capital Losses
Maybe you’re more the investor type, and you make additional money in the investment markets. As with all forms of investing, there is always risk, and sometimes you end up losing some money. Those losses are also eligible to reduce your taxes.
For the more sophisticated investors, this type of deduction is an important consideration. Sometimes it’s better to incur a loss on one investment, and use that to offset a gain somewhere else. This type of tax planning is best performed by experienced investors, or under the guidance of a certified tax or financial planner.
Claim Education Expenses
Another way that we grow our incomes is by growing ourselves. While the tax code is behind the times in terms of what qualifies, if you are receiving education from an accredited institution your tuition costs might qualify for tax credits.
Mostly these accredited institutions are universities and colleges delivering professional, post secondary education.
If you are continuing your training and development by taking courses at this level, those tuition costs should be considered when preparing your taxes.
Deduct Charitable Contributions
One final way to reduce your taxes is to contribute to a charitable organization. If taxes are your contribution to society as a whole, charities give you the freedom to put your dollars to work on a cause that is important to you.
Those charitable contributions that you make help society improve, and better take care of various people and/or ideas. That has a tangible, meaningful value, and you are rewarded with tax credits for doing so.
For example, if you contribute to the Heart and Stroke Foundation, you are promoting research and development into cardiovascular issues and remedies. The more discoveries that the foundation makes, the healthier the population can become. As people become healthier, there is less drain on the healthcare system due to cardiovascular ailments, and society as a whole experiences a lower financial burden.
In that way, your donations not only help a cause that you believe in, but also benefits society through their advances.
If you want to pay less taxes, look for ways to improve both yourself and the society you live in. Whether it’s a stronger financial foundation, or adding value through business and education, your growth journey benefits more than just you. And to reward you for your efforts, there are numerous tax advantages that you can reap along the road. The only question left is; how do you plan to grow?