How to Reduce Tax Rates

Your income level is the determining factor in regards to the amount of money you pay in taxes. The number that determines the tax rate is your adjusted gross income. If you take advantage of credits and deductions, it is possible to drastically reduce your tax rate.

• Organize all of your financial records and keep track of your spending habits. Take advantage of a spreadsheet or accounting software for easy record keeping. Many of the expenses you incur may have a positive effect on your tax liability reduction. In order to take advantage of these expenses; however, you must know where your money is spent. You miss out on credit and deductions at tax time when you do not keep track of your expense totals and receipts, so this is vital.


• Lessen your taxable income. In order to do this, utilize some of your expenses for business use, such as your vehicle or cell phone. Increasing the amount that you donate to charities also helps lessen the amount of taxable income you have. Another option that benefits you is investing a larger amount of your money into a retirement account, since this money is nontaxable.


• Take advantage of tax credits. These credits include energy saving tax credits, dependent and child care expenses and education credits. These credits are designed to directly reduce the amount of taxes you are liable for.


• Meet with a professional tax preparer. This is especially vital if your taxes are complex in the least bit. It is a good idea to meet with a professional accountant or CPA at the beginning of each year, so you can set up a financial roadmap for the year ahead. These professionals are trained with numbers and current tax laws, so they are the best people to look to for advice.