California is a fascinating place to live but different taxes in the US state pose financial challenges for people. High rates of California state and local taxes make it mandatory for residents to search for ways to reduce their taxes significantly. Fortunately, many ways are available to keep a check on the taxes one pays in the state.
Creative Strategies to Lighten Your Tax Load
When discussing state income tax rates, the range varies from 1% to 12.3%, depending on the taxpayer’s tax brackets. Other than this, a variety of taxes, including property tax and sales tax, etc, contribute to the financial burden of taxpayers.
Therefore, it is wise to seek assistance from expert accountants in California to reduce your taxes by adhering to state tax laws. We must tell you that you can utilize tax deductions and credits to enjoy multiple tax benefits and get the maximum possible tax refunds.
If you are clueless on this subject, follow the below-listed tips to reduce your taxes in California considerably. Here are these:
1. Delay the Payment of Taxes
It’s a fact that no one can avoid payment of federal taxes. However, if you consider deferring your tax payments into the future, you could save a good amount of money by doing so.
It is advised to opt for this option when you can pay your taxes in a lower tax bracket in the future. And you could do it either by investing in a retirement account or delaying the bonus amount from your employer.
2. Secure the Deduction for your Home Office
If you run your business at your home, you can save taxes by claiming a work-from-home office tax deduction. However, you can enjoy a deduction after fulfilling the following requirements:
- Firstly, you should be a business owner and not be working under someone else.
- Secondly, you must use the home office space regularly for your business activities to save taxes.
If you fulfill these terms, you are eligible to claim one-fifth of the office space assigned in your home.
3. Check Your Eligibility For Self-Employment Taxes
Now that we discussed saving taxes in work-from-home scenarios, we must tell you you could also save money by proving your self-employment expenses. For example, if you go on business trips or make other expenses for business purposes, you are eligible for self-employment tax deductions.
So, if you operate your enterprise as a freelancer, you should go for expert business tax solutions to ensure the maximum tax savings. It would help improve your business finances, contributing to your comprehensive growth.
4. Open a Health Savings Account
If you have a high-deductible medical plan, you could opt for starting a health savings account. Not only would it help you get an immediate tax deduction but would also ensure deferred taxes.
Provided you give proof of your qualified expenses, you could withdraw your savings completely tax-free. Also, the balance left at the end of the year would be rolled over, similar to a retirement account.
5. Move Stocks to Donor Fund
One way to reduce taxes in the state is by moving your stocks with a high capital gain tax to a donor fund. It’s because donor funds are not subjected to taxes and you could easily avoid a 15% capital gain tax in this manner. Individuals who attempt to itemize can also deduct these funds.
6. Opt for a College Savings Plan
You could boost your tax savings by opting for a 529 savings plan which is aimed to ensure savings for future educational costs. If you have a child then you can add money to his college savings account and avoid a significant amount of tax.
For this, you need to document your withdrawal for qualified educational expenses by showing receipts or checks. However, you must keep in mind the gift tax liability that you may need to deal with in case your contributions surpass $15,000. In this scenario, you are liable to pay an extra amount.
7. Claim Deductions for Military Members
Military persons often travel from one place to another for their work purposes. If you have unreimbursed expenses for travel, food, or lodging, you could opt for tax deductions. It would help you prevent adding unnecessary expenses into your pocket.
8. Consider Opening an IRA Account
To reduce your tax burden in California, you can transfer your money into individual retirement accounts. In this case, you get two options:
- Traditional IRA
- Roth IRA
A traditional IRA facilitates growing your money tax-deferred for pre- or after-tax dollar contributions. Whereas, the Roth IRA pushes individuals to opt for after-tax contributions. Hence, it allows your money to increase in value tax-free.
9. Add Money to 401(k)
One of the best and easiest ways to increase your savings on California source income tax is by adding the money to the 401(k) plan. Up to a certain limit, you will not be taxed for putting this money into your retirement account.
10. Redirect Your Income Elsewhere
If you fall into a high-tax bracket, then you could consider shifting your income to your family member’s account which falls in a lower tax bracket than yours. It is a completely legal action and it could help you save a good amount of money by reducing your taxes in California.
11. Make W-4 Form Adjustments
Twisting the W-4 forms is another way available for you to reduce the amount of taxes you pay. You can inform your employer and consider adjusting your W-4 form.
- If you have a large amount of taxes to pay, you could consider raising your withholdings. This way, you will have to pay less in taxes.
- If you are entitled to receive big tax refunds, you should try to reduce your withholdings. In this manner, you won’t have to pay a bigger amount in taxes than you are entitled to pay.
Conclusion
Every taxpayer in California is subjected to standard deductions or credits. Knowing about different options could help reduce the amount of taxes you would have to pay.
We hope you gained valuable knowledge about limiting the tax amount through this piece of content. If you find it complicated to understand the tax system, it is advised to hire a tax professional. It would help you improve your savings by managing your taxes effectively.
