How to Reduce Your Taxes

  • Invest in a traditional company retirement plan. This may be a 401K, a TSP, a 403b, a 457 or maybe an individual 401K or SEP. The more money you put into your future retirement fund, the bigger the tax deduction will be today.


  • Review IRS tax form 1040. Educate yourself on what deductions (good) are available and definitely understand what credits (great) are available. Focus on understanding what options you have.


  • Increase your passive income. This usually involves your money making money (you save and invest and then your money earns dividends and capital gains). This money will generally be taxed at a lower rate and you will not pay FICA tax on this income.


  • Buy fewer vehicles. In most cases you will pay a fee (another word for a tax) that will run into the hundreds and possibly thousands when you register your new vehicle for the first time.


  • Drive fewer miles. The federal gas tax (18.4 cents per gallon) combined with your state gas tax will be reduced by eliminating some of your trips.


  • Eat out less often. You will not pay the state and city sales tax when you eat at home. Do you know what the sales tax rate is in your area?


  • Buy less house. You will pay lower property taxes when you avoid the McMansion.


  • Buy and hold your investments. Long-term capital gains (investments held more than 1 year) are taxed at a lower rate than short-term capital gains (investments held 1 year or less). See the current capital gain tax rates here. Buying and selling investments will increase your taxes. Avoid this manic behavior. Buy and hold your investments over long periods of time. DO NOT try to get in and out by timing the market.


  • Take responsibility for the taxes you pay or suffer the consequences of paying higher taxes. The choice is yours.