Legit Ways To Reduce Tax On Your Salary In The US

The average American pays more than $15,000 in income taxes. This leaves a lot of people shocked when they get their first paycheck as that amount you thought you were making per hour is actually a lot less. Thankfully, there are many ways in which you can lower your taxes throughout the year while still getting the most out of your yearly tax return. Here are five legit ways to reduce tax on your salary in the United States.

5. Donations

You’ll see a lot of wealthy people wind up making big donations, and it’s not always out of the kindness of their hearts. That’s because donating money can be a big money saver on your taxes, with some people being able to deduct a maximum of 60 percent of their adjusted gross income. If you’re donating a significant sum, don’t just assume that you can write it off and have it approved without documentation, however.

Any charitable contribution of $250 or more will need a certified letter stating that you’ve made that donation. For most people, though, needing to itemize donations won’t be necessary. However, you’ll still want to document any contributions made for your personal knowledge.

4. Home Office Deduction

Each year, the amount of people working from home is growing. Because of this, the amount of money that people are spending to make their homes more suited for remote work is growing, too. Thankfully, the IRS allows you to deduct $5 per square foot of your home that’s being used exclusively for office space. This means that you can deduct $1,500 each year just for setting up a desk in a spare bedroom, or really anywhere that you find it comfortable to get work done.

3. Health Savings Account

Many of us will end up putting money into a savings account as soon as we’re paid, but that will still be taxed. Instead, you can start putting some of your money into a Health Savings Account, or HSA, which can cover a wide range of healthcare costs. This can be anything from teeth cleanings to new glasses and doctor visits. 

The amount that you contribute to an HSA isn’t taxed, as the amount is determined before federal taxes are taken out. Even depositing into your HSA account is tax deductible, while using your HSA card to make payments is tax exempt. As the account grows, that money is tax-deferred, meaning that keeping a good amount of your money in HSA is a great way to avoid paying high taxes.

2. Update Your W-4

At the start of the year, the human resources department of your employer will ask you to take another look at your W-4 form for tax withholding. Many people opt to have their taxes taken out of their paychecks in large sums throughout the course of the year, meaning that they’ll get a big refund each year.

However, if you find yourself living paycheck to paycheck, it might be wise to update your W-4 so that you’re getting more each payday. If you find yourself living comfortably and end up getting a raise, you can have the IRS withhold more each paycheck so that you’re getting a large refund.

1. Retirement Plans

The system in the United States is set up so that you can enjoy a comfortable retirement. As such, there are a lot of tax breaks when you’re putting your money into a retirement plan like a 401(k) or IRA. Contributions, which can happen automatically with every paycheck, are tax-deductible, while the money in these accounts isn’t taxed as the numbers grow.

There is one caveat to this method, though. If you end up needing a lot of money, but it’s tied up until you reach retirement age. Taking out the money early can lead to a large tax penalty that’s automatically taken out upon withdrawal.