Taxes are difficult to avoid, but there are many strategies to help ward them off. Here are three ways to protect your income from taxes.
Start a Business
In addition to creating additional income, a side business When used in the course of daily business, many expenses can be deducted from income, reducing the total tax obligation. Especially important tax deductions for self-employed individuals are health insurance premiums which are available if special requirements are met.
Max Out Retirement Accounts and Employee Benefits
In both 2020 and 2021, taxable income can be reduced for contributions up to $19,500 to a 401(k) or 403(b) plan. Those 50 or older can add $6,500 to the basic workplace retirement plan contribution. For example, an employee earning $100,000 in 2020 or 2021 who contributes $19,500 to a 401(k) reduces taxable income to only $80,500.
Use a Health Savings Account (HSA)
Employees with a high-deductible health insurance plan can use a health savings account (HSA) to reduce taxes. As with a 401(k), HSA contributions (which may be matched by the employer) by payroll deduction are excluded from the employee’s taxable income; an individual’s direct contributions to an HSA are 100% tax-deductible from their income.
