how to reduce your taxes tax deductions
there are two ways to pay less tax make less money or earn more tax benefits as it s usually more advantageous to seek out tax benefits there are several specific places taxpayers can look tax deductions are legislative enactments that allow a taxpayer to reduce the amount of income they are taxed on their return though tax deductions don t directly reduce the amount of tax a taxpayer must pay it does reduce the calculation basis for the taxpayer s tax liability for example consider a taxpayer who contributes to a traditional ira in many situations the taxpayer is allowed to deduct their contribution from their taxable income should the taxpayer have contributed the 2023 maximum amount their taxable income would be reduced by 6 500 if the taxpayer is in the 22 marginal tax bracket this would result in a potential 1 430 6 500 22 tax savings 20the most common federal tax deduction used to reduce your federal income tax liability is the standard deduction each taxpayer may claim a standard deduction based on their filing status this amount which is reassessed annually allows a taxpayer to reduce their taxable income by a set amount established by the federal government the alternative to a standard deduction is the itemized deduction this option allows taxpayers to accumulate certain types of eligible expenses and opt to deduct the total allowable amount of these expenses instead of the standard deduction these types of expenses include charitable contributions mortgage interest payments and medical expenses 21last there are deductions exclusive of the standard deduction or itemized deduction for example as long as taxpayers meet specific contribution and income limit thresholds certain types of retirement contributions may be deducted 22 alternatively taxpayers may receive deductions on other types of spending such as educational expenses 23