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How to Reduce Your Federal Tax Liability

HomeBusinessHow to Reduce Your Federal Tax Liability

A lot of the benefits that U.S. citizens enjoy are only possible because of taxes. But that doesn’t mean that you have to enjoy paying taxes. In fact, it is your right to not pay any more tax than you absolutely have to. You can avoid overpaying by knowing what you can do to reduce your taxes. Here are three things you can try.

Buy Green Technology

In order to incentivize greener technology that reduces the country’s carbon footprint, the federal government and many states offer tax breaks and credits for those that purchase certain green technologies. According to RJ Construction, the federal government can give you a 26% tax credit for installing solar panels on your roof. This can really help you save a lot of money. Once the solar panels are installed, your power bill is going to be dramatically reduced. In some places, you can also get benefits for purchasing electric cars, installing wind turbines, and using hydro-electric power.

Also, a 1099-R is an information return that is filed with the IRS when an eligible distribution has been made to you. How to use 1099 R form that’s going to be an important one to take note of if you had distributions from any pension, annuity, retirement or insurance contracts. 

Contribute to a Retirement Plan

Because the government often takes on the financial burdens of the elderly that are strapped for cash, the government has chosen to give incentives for preparing for retirement. According to, you can be eligible for a tax credit if you contribute to a retirement plan like a 401(k). Many of these retirement plans allow you to accrue interest tax free. Some employers will even match your contributions to your retirement account up to a certain amount. That’s a 100% return on your investment!  The only downside to these plans is that you will most likely have to pay a fine if you choose to withdraw from these counts before you reach retirement age. For most plans this age is set at 60 or 65 years.

Track Deductibles

Tax law and filing taxes is complex. Because of this, many people just throw their hands up in the air and choose to just pay what they are told to pay. However, by keeping careful track of your finances, you could find out that you owe a lot less than you think. The government allows you to deduct from your total income based on certain actions. For example, if you donate a bag of clothes that are worth $300 to a local charity, you can report this on your tax forms. This will reduce your effective yearly income which will in turn reduce the amount you have to pay to the government.

Just be sure that you know what you are doing when you try to reduce the amount that you pay in taxes. It is never a good idea to lie to the government or participate in shady business. You might get away with it for a few years, but it’s not worth going to jail for.

Read this next: Tips To Avoid Tax Fraud

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