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Tax Students: Protect your income from taxes

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Tax Students: Protect your income from taxes

Any person making an income knows that they have to pay taxes. While this is not something anyone can avoid, there are ways to lessen the amount or in some cases, even earn extra.

  1. Invest in municipal bonds

Buying municipal bonds means lending money to a state or local government for a set number of years. Interests are also paid in a predetermined period and once your bond reaches the maturity date, the full amount of the original investment is returned.

Additionally, interests are also earned and paid out to the investor. What makes this appealing is that these payments are exempt from federal taxes depending on where you live. This means that the higher investment you make, the higher returns you get.

  1. Consider long-term capital gains

Investing is one of the most sought-out ways to earn more and what makes it more appealing is the capital gains. The appeal of investing in stocks, bonds and mutual funds is the capital gains earned for holding on to them long-term.

A capital gain is the increase of a value of an asset. The price increase of a stock, a property or a bond, and then sold at that higher price. The longer an asset is held, the lower tax is paid for.

  1. Start a business

Aside from earning extra income, having your own business has its own tax advantages. This mainly comes from deducting many expenses from the income to reduce the tax obligation. For self-employed individuals, health insurance programs can also help to lessen tax obligations.

Additionally, by following Internal Revenue Standards (IRS) guidelines, a business owner can also deduct part of their home expenses from their income. Business owners only need to make a profit in their business for three of the last five years. They’ll be considered as earning from a business by then, and the IRS evaluates a number of factors for the individual to claim these deductions.

  1. Max out employee benefits

If your company is offering retirement plans or benefits that are deducted from your salary, it’s best to have them subtract the maximum amount. While this will lessen the monthly income you receive, take note that these benefits are saved up for you for different purposes. 

Some companies offer educational program benefits for your kids or a retirement fund for you. You’ll be saving a portion of your income and at the same time, reducing your tax obligations.

  1. Use a health savings account

Employees with high contributions to health savings accounts (HSA) can use this to reduce taxes since income is first contributed before taxes are paid. While an HSA can only be used for medical expenses, this is a great way to save up your income. This will also help you prepare for any medical emergency and reduce the taxes you’re required to pay.

Take note that Tax Students does not condone tax evasion. These are just tips on how to lessen the taxes you’re required to pay. This will also help you earn more or save your income and only pay all the legally owed taxes and not the extra. We hope you can use these tips to earn more.

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