How to Lower an Individual Tax Bracket
The income tax system has been criticized as difficult to understand and overly burdensome on taxpayers. The goal of most taxpayers is to find a way to reduce their tax burden. Because of the progressive nature of the income tax, the most effective plan is to lower the individual's tax bracket.
Directions:
- Lower your level of taxable income. This does not necessarily mean earning less money, although that would do it, sadly. It also means increasing those things that deduct from the amount of your overall taxable income. There are a number of deductions you can take on taxes, including deductions for retirement planning, insurance and mortgage expenses that directly lower your taxable income. It is your taxable income that the IRS looks at when it determines your tax rate.
- Consider donations to charitable institutions. Whether you are an individual, a sole proprietorship, or another entity, charitable contributions do represent items that can be taken off your taxable income. Enough of these deductions can lower your tax bracket. These are things that you need to plan throughout the year. Giving regular contributions to your local church or non-profit institutions you support will not only lower your bracket, but will make you feel better.
- Diversify your investments. Having income in capital gains and other lower-tax investment strategies will help you reduce your tax burden because those investments are taxed on a lower basis.
- Shift your income through gifts. The IRS allows you to gift a certain amount of your income every year to your children. By making these gifts, in accordance with those guidelines, you can lower the tax burden.