When it comes to increasing your net income, it’s not just about generating more revenue—it’s about knowing the right tax strategies that can keep more of your money in your hands. There are plenty of ways to reduce your tax burden legally and effectively, and the following 10 methods are some of the best for doing just that. Let’s dive into how you can leverage the tax code to keep your hard-earned income where it belongs.
Here’s a lesser-known but powerful strategy: if you’ve invested in a small business and held the stock for at least five years, you can exclude up to 100% of capital gains on that investment under the QSBS rule. It’s a game-changer, especially if you’re dealing with high-growth startups. This exclusion can apply to up to $10 million in gains. If you’re an investor, make sure you’re paying attention to this one—it can have a significant impact on your tax bill.
Businesses engaged in developing new products, processes, or technologies can benefit from the Research and Development (R&D) tax credit. This credit can offset payroll taxes for qualified small businesses, providing an immediate benefit. Whether you’re improving an existing product or developing something entirely new, this credit directly lowers your tax liability, leaving more money for innovation and growth.
The Augusta Rule allows homeowners to rent out their residence for up to 14 days a year without reporting the rental income. If you host business meetings or company retreats at your home, you can deduct the business expense while receiving tax-free rental income. It’s a legitimate way to make your property work for you without adding to your taxable income.
If you’re hiring, take a close look at the Work Opportunity Tax Credit (WOTC). It’s designed to encourage businesses to hire employees from certain targeted groups, including veterans, long-term unemployed, and others who often face barriers to employment. The credit can range from $1,200 to $9,600 per employee, making it a solid incentive to hire while reducing your tax burden.
Investing in new equipment or technology for your business? Under Section 179, you can deduct the entire cost of qualifying purchases in the year they are made, rather than depreciating them over several years. For 2024, you can deduct up to $1.16 million in qualifying expenses. This deduction helps you reduce your taxable income immediately while keeping your business on the cutting edge.
For real estate investors, depreciation is a crucial tool for lowering taxable income. Even as your property appreciates in market value, the IRS allows you to deduct a portion of the property’s value annually. Combine this with a 1031 exchange, which allows you to defer capital gains taxes when you reinvest in similar property, and you’ve got a powerful way to grow your real estate portfolio without an immediate tax hit.
For those with investments, tax-loss harvesting allows you to sell underperforming assets to offset capital gains on other investments. If your losses exceed your gains, you can deduct up to $3,000 of those losses against regular income annually, and any excess can be carried forward to future years. It’s a smart way to manage your portfolio while cutting down on your tax bill.
Maxing out contributions to your retirement accounts is one of the most straightforward ways to reduce taxable income. In 2024, you can contribute up to $23,000 (or $30,500 if you’re over 50) to a 401(k). These contributions lower your taxable income today, while allowing your investments to grow tax-deferred. It’s a long-term strategy that pays off in both retirement savings and tax savings.
If you have a high-deductible health plan, don’t overlook the benefits of a Health Savings Account (HSA). Contributions are tax-deductible, the funds grow tax-free, and withdrawals for qualified medical expenses are also tax-free. In 2024, individuals can contribute up to $4,150 and families up to $8,300. And once you’re 65, you can use the funds for any purpose—although non-medical withdrawals are taxed as ordinary income, there’s no penalty.
For the self-employed or small business owners, the home office deduction is a valuable way to reduce your tax bill. You can deduct a portion of your rent or mortgage, utilities, and other home expenses based on the percentage of your home used exclusively for business. Whether you use the simplified deduction of $5 per square foot or calculate actual expenses, it’s a legitimate way to lower your taxable income while running a business from home.
Tax savings aren’t just about checking a few boxes—they’re about knowing the strategies that allow you to keep more of your money. These 10 methods offer a mix of immediate and long-term savings, and if you’re not leveraging them, you’re leaving money on the table. Get ahead of the game and use these strategies to increase your net income—the smart way. If you need help implementing these, reach out, and let’s put these strategies to work for your business.
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